Slapped for the second time this week, the market turned south on Thursday, except the Nikkei 225 index which edged up slightly higher.
ECB President Mario Draghi kept his powder dry as he only offered to buy Italian and Spanish bonds on the bonds market only when the European governments’ bailout fund also starts purchasing the bonds directly under tough conditions. Hence, unlike his predecessor (Jean-Claude Trichet), Draghi opted to wait until the governments’ involvements start before doing his part to purchase bonds. According to Draghi, Jens Weidmann who heads the Bundesbank at the moment is the only one expressing “reservations”, and it would take more time and efforts to persuade Weidmann to accept the bond-purchasing program which was flatly rejected by his predecessor, Axel Weber back in 2010.
It is clear that both the Fed and the ECB are buying time to loosen up the pressure over Spanish and Italian bonds which took the Spanish bond yield beyond the critical 7%. The markets had expected a lot more than what they actually got from both the Fed and the ECB and it’s possible that the only thing that kept it rather resilient during the last few days was the pending release of the U.S. nonfarm payrolls data this Friday. Expected by analysts is that the U.S. economy had added 100k jobs in July, up from 80k jobs added in June. Still, referring to the ADP employment data earlier this week which showed that the private sector had added 163k jobs in July, slightly less than 172k added in June. The market however, had expected it at 120k. Nevertheless, slipped private sector hiring could also mean that the NFP data could be posting figure less than 80k.
And then there’s that paradox where markets cheer dreadful data and in contrast, shrug off good data. A dreadful data could be assumed as pressuring central banks into action (which has been unproven so far) while great data could be assumed as taking away such pressures from central banks.
Other data set for release this Friday is the ISM for the non-manufacturing sector. At the moment, ISM for non-manufacturing sector is expected to slip slightly lower from 52.1 to 52.0. Earlier this week, the ISM for manufacturing sector was released at 49.8, up slightly from 49.7 set in June but lower than the expected value of 50.2. ISM value below 50 shows contraction while above 50 shows expansion.
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