The U.S. Dollar had already been weak when the new ADP report worsened its condition. The report is a measure of employment derived from an anonymous subset of roughly 500,000 U.S. business clients. The recent report showed a higher unemployment than experts had previously expected. Investors have reacted negatively to the news, since economist had actually predicted an increase of 20.000, but the reported number was -39.000. The report is not only a great disappointment for investors, but might also indicate the beginning of a new recession in the market. The Euro was on an overnight peak level of 1.3896. It has recovered as a consequence of the announced of the employment report, but investors seem to remain cautious since the pace of its recovery appears to be slowing down. The Dollar also dropped significantly in comparison with the Yen. It went as far as 82.75 and pessimistic trades will be careful as the Dollar/Yen is approaching the psychologically meaningful level of 82.0, which experts assume to constitute the cut off for the Japanese central bank.
According to the ADP Employer Services, private employers had to cut around 39.000 jobs in September. The unexpectedly poor numbers were a result of cuts in manufacturing, which had previously been a strong area. Wall Street reacted with mixed numbers to the report and European markets slightly rose, hoping that more banks will follow the example of the Bank of Japan, which had recently cut interest rates in a surprising move.
There are more good news for the U.S. economy. The U.S. service sector activity rose more than expected. Investors have regained confidence after the decision of Japanese central bank and the improvements in the U.S. service sector. Nevertheless unemployment is still a major damper for the economic recovery. On Friday the U.S. government will announce the new unemployment rate and experts expect it to have risen.
However, the U.S. dollar decreased in value in comparison with most all other major currencies. The dollar reached a 15-month low in comparison with the yen and an 8-month low in comparison to the Euro. Nevertheless, economists assume that a consistently improving U.S. economy might still be able to change course.
Investors have reacted very positively to the decision by the Japanese central bank to cut its key interest rate this week. The American stocks gained about 2 percent and finished at their best levels since last May. The Japanese Nikkei also increased by 1,5%. On Tuesday, the Bank of Japan announced that the lending rate will be lowered from the current 0.1 % to a rate between 0 % and 0.1 %. Additionally the bank will acquire about government bonds and assets worth $60 billion in order to support the slowly improving Japanese economy. The biggest winners of the American Down Jones were Bank of America, DuPont, Harley-Davidson and Boeing. European investors reacted positively as well, the French CAC 40 gained 2.3 % and the German DAX climbed 1.3%.
Today we have seen a new five months high. Now the barrel crude Oil is traded for 83,08 USD (+0,31 %) at the New York Mercantile. The reasons for this development are pretty clear in view of the recent developments. Main reason is is not the higher demand for Oil just before the heating season in winter with the higher consumption during that month.
Instead of the seasonal fluctuations of the demand there are severe reasons behind that. The Federal Reserve Bank denied that they will take further measures for supporting the economic recovery. This is a surprising development due to the fact that they have stated on Oct. 4th to take some measures and that they want to buy assets. As a consequence the US dollar slipped down compared to the Yen to a 15 year low (has lost 0,31 % against the Yen today !). Reason for that is the lower confidence in the US currency and therefore further kindling the trend towards commodities.
Traders are convinced that this higher price for Oil will not have a positive effect on the car driver´s consumption and therefore the demand. Furthermore they analyze the actual developments on the job market which show that American companies have reduced the number of employees in September. They axed 39,000 employees which was the biggest decline since January.
In such an economic climate and due to the fact that this type of commodities is not a perishable good they tend to see that it is a good means of saving the equivalent – especially when the own currency is falling to new lows.