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Chicago PMI Beats But Weak Employment Dampens Rally in Risk

Last updated 10/30/2009 10:12 AM ET (GMT -5) 3 Comments

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Boris Schlossberg

Director of Currency Research, GFT

Chicago PMI report  blew out estimates printing at 54.2 versus 49 forecast and well above the 46.1 reading recorded the month prior. This was only the second time in more than a year that the Chicago PMI report rose above the key 50 boom/bust line indicating a string pickup in economic activity,

Most of the gains were driven by a massive spike in New orders component which increased  to 61.4 versus 46.3 in September.  Employment component however showed a slight decline to 38.3 versus 38.9 suggesting that labor conditions remain challenging.

The capital markets’ first reaction to the news was to accentuate the negative by focusing on the lackluster employment subcomponent rather than the much better headline numbers. Both equities and risk FX sold off on the news, but as the day wears on risk assets may try to rally once more as today’s evidence of expanding economic activity should support the recovery trade.

One factor that stands in the way for an unambiguous bull run is the lofty valuation of all risk assets. As we noted earlier in the week, “With Dow struggling at 10,000 S&P capped at 1100 and EUR/USD with 1.5000 the recovery rally looks exhausted as most of the good news appears to have been priced in. “ Still the data this week clearly skews towards risk, as signs of reviver continue and if equities can muster a rally   on the close of the week, high beta FX should follow.

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Comments (3)

Demax

October 30, 2009 at 11:42 AM ET

Looks like people are more interested in taking money off the table Boris.
Rallies in the betas look weak, short and quickly pushed lower.

Next week's another week...

bschlossberg

October 30, 2009 at 11:44 AM ET

Yes profit taking the order of the day and risk may continue to come off teh table until market sees an improvement in labor conditions. That seems to be the key theme driving trade

Demax

October 30, 2009 at 12:57 PM ET

It was that little drop in employment that might have undermined risk confidence, it could imply an ongoing contraction in the consumer base which will not positively support the nascent recovery which, as you pointed out from a GDP pov is backward looking anyway.

If retailers don't see any upturn (or even worse - a downturn) towards hol season, this recovery will be over and we'll see the next phase materialize.

There might be a book squaring relief rally towards close on your side of the pond - but I'm out until next week on this side.

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.