Business Blog Posts

Bets against the U.S. dollar have grown significantly since September because of increased expectations the Federal Reserve will print money to buy debt, and that may limit the downside if the payrolls number is a lot lower than expected.

Still, if the Fed follows suit with the Bank of Japan and gets more aggressive about easing policy than the market anticipates, the cheap money trade of selling dollars and buying gold, emerging market equities and longer-term bonds will undoubtedly spread.

Japan's Nikkei share average slipped 0.5 percent .N225 after hitting a two-month intraday high on Thursday.

The MSCI index of Asia Pacific stocks outside Japan .MIAPJ0000PUS edged 0.4 percent lower after closing at a 28-month high on Thursday. Declines were spread evenly across most sectors, though the technology sector underperformed for a second day.

In the foreign exchange market, the euro, which has benefited from dollar weakness, was largely unchanged at $1.3917 after the currency reached an eight-month high around $1.4030 on Thursday.

The rapid increase of bets on the euro means the threshold for more dollar weakness after the U.S. payrolls figure is high.

"Positioning could limit the degree of dollar downside, particularly against the euro. This likely means that the bar for a dollar-positive surprise on the upside is somewhat lower and a just above consensus outcome may not be a significant spark for volatility," Todd Elmer, currency strategist with Citi in Singapore, said in a note.

The dollar was trading at 82.35 yen, above a 15-year low of 82.11 yen plumbed on Thursday.

The outcome of the Group of Seven rich nations meeting this weekend could influence views on when Japanese officials will intervene again to pull down the yen.

Japan's first intervention in six years last month sparked a heated debate globally -- what some have even called a currency war -- about what governments can do to keep their currencies from strengthening against the falling dollar.

"There's speculation that, if the G7 wants a coordinated stance to put pressure on China to raise the yuan, then it becomes more difficult for Japan to intervene," said a dealer at a Japanese brokerage house.

Gold prices slipped in the spot market, falling 0.2 percent to $1,330.30 an ounce. The precious metal traded in a wide range on Thursday, hitting an all-time high of $1,364.60 but then ending the session around $1.332.70.

The 90-day inverse correlation between gold and the U.S. dollar is the strongest it has been all year, meaning when one falls, the other is very much likely to rise based on price action over the past three months.

(Additional reporting by Hideyuki Sano in Tokyo)

The Group of 20 finance ministers scheduled a working breakfast on the sidelines of this weekend's International Monetary Fund and World Bank twice-yearly meetings.

The smaller G7 grouping of advanced economies holds a closed-door dinner later on Friday.

Neither group is expected to issue a formal statement, but G20 officials said foreign exchange matters will be discussed at both events amid concerns that countries will intentionally weaken their currencies to pursue export-led growth.

China, usually at the center of the currency debate, has company this time. Officials are still leaning on Beijing to allow the yuan to rise more rapidly, but Japan's intervention last month to weaken the yen put Tokyo on the hot seat, too.

The United States can also expect criticism over its seemingly benign neglect of the sinking dollar, which has led investors to chase bigger returns in emerging markets such as Brazil, driving up asset prices and inflation.

"What we all want is a rebalancing of the global economy and this rebalancing cannot happen without ... a change in the related value of currencies," IMF Managing Director Dominque Strauss-Kahn said on Thursday.

The currency strains are symptomatic of a deeper problem: most advanced economies are not growing rapidly enough to reduce unemployment despite trillions of dollars in government stimulus spending and emergency loan guarantees.

U.S. Treasury Secretary Timothy Geithner may get an unpleasant reminder of that when U.S. monthly employment data is released on Friday -- right in the middle of the G20 breakfast.

Economists polled by Reuters think the report will show virtually no net growth in employment, with the jobless rate ticking up to 9.7 percent.

For Geithner and most of his European counterparts, options for providing more stimulus are limited because either politics, creditors or both prevent them from amassing significantly larger piles of government debt.

Until rich nations find their footing, emerging markets will be the strongest source of global growth. So far, they appear to be up to the task. The IMF expects emerging markets to grow at three times the pace of advanced economies.

Those countries are clamoring for greater decision-making power at the IMF, commensurate with their growing economic prowess. This has been another thorny issue for G7 and G20 leaders who have yet to agree on how exactly to divvy up power when no one wants to relinquish their own position.

The United States thinks Europe ought to give up some if its seats on the IMF executive board, while European countries have proposed a seat-sharing rotation.

IMF officials are scheduled to attend Friday's G20 breakfast, and are hopeful that some progress can be made toward resolving reform issues by a G20 leaders summit in Seoul next month.

(Editing by Leslie Adler)

The dollar reversed a long downtrend, slamming oil and gold markets, which in turn took a toll on energy and mining stocks. Newmont Mining Corp (NEM.N) and Freeport-McMoRan Copper & Gold (FCX.N) both fell more than 2 percent.

Investors said better-than-expected weekly jobless claims limited declines, but the spotlight was on Friday's larger non-farm payrolls report.

Friday's report is expected to show payrolls were unchanged in September, but the release has bigger implications for a market hoping that weak data will spur the Federal Reserve to take further steps to boost the economy.

"This one, unfortunately, gets into the realm of economic psychology," said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.

"I think the market would appreciate (a number) that's a little better, but that still allows the Fed to come in."

The euro's recent rally against the dollar stalled as investors booked profits. The dollar and equities have had an inverse relationship as investors take money out of stocks for the perceived safety of the greenback.

TAKING A SHINE TO ALCOA

Alcoa Inc (AA.N) kicked off the unofficial start to earnings season after the closing bell. The largest U.S. aluminum producer reported a lower third-quarter profit, but said global markets were strengthening. Its shares rose 3.2 percent to $12.59 in extended trade.

But some lackluster earnings reports weighed on the market during the regular session after PepsiCo Inc (PEP.N) trimmed the top end of its earnings forecast, while Marriott International Inc's (MAR.N) results failed to beat high expectations. Pepsi was down 3 percent at $66.10 and Marriott slid 5.8 percent to $35.67.

The Dow Jones industrial average .DJI dipped 19.07 points, or 0.17 percent, to 10,948.58. The Standard & Poor's 500 Index .SPX eased 1.91 points, or 0.16 percent, to 1,158.06. But the Nasdaq Composite Index .IXIC added 3.01 points, or 0.13 percent, to 2,383.67.

Last month, the Fed hinted at the possibility that it might pump more cash into the U.S. economy, probably through buying bonds, in an additional round of quantitative easing to bolster the anemic recovery after the worst recession since the 1930s.

Growing conviction of further fuel from the Fed in part helped the S&P 500 rally 8.8 percent in September.

While the overall payrolls number is not expected to change, economists polled by Reuters forecast that private-sector payrolls added 75,000 jobs in September. The unemployment rate is expected to tick up to 9.7 percent from 9.6 percent in August.

BETTING ON TEEN SPIRIT

IMF Managing Director Dominique Strauss-Kahn said at a news conference that a weakening in the spirit of cooperation that grew out of the crisis was regrettable and said an adjustment in currency values must be part of economic rebalancing.

"I think it's fair to say that momentum is not vanishing but decreasing and that's a real threat," he warned. "Everybody has to keep in mind this mantra that there is no domestic solution to a global crisis."

Strauss-Kahn said he disliked the notion that a currency war was brewing because the term was "too military" but conceded "it's fair to say that many do consider their currency as a weapon and that's certainly not for the good of the global economy."

This weekend's semi-annual meetings of the IMF and World Bank -- and a Friday night session of Group of Seven finance chiefs -- are expected to provide a forum for intense discussions about efforts to persuade China to let its currency rise and tamp down pressures for other emerging countries to control capital flows.

GREATER SAY AT IMF INVOLVES GREATER RESPONSILITY

Strauss-Kahn said having a bigger say at the IMF, as requested by big emerging economies like China, comes with greater responsibility in the global economy.

"If you want to be at the center of the system ... it goes with having more responsibility in the system," he said.

In an interview published by Le Monde earlier on Thursday, Strauss-Kahn pointed at China's currency policy as a primary sticking point in efforts to rebalance the global economy.

"The undervaluation of the (Chinese) yuan is the source of tensions in the world economy which are in the process of becoming a threat," he told the news paper. "If we want to avoid creating the conditions for a new crisis, China will need to accelerate the appreciation process."

Slow-growing advanced economies want to export their way to a stronger recovery, and a weaker currency would help. The United States has repeatedly expressed frustration with the slow pace at which the yuan is rising.

China held the yuan stable during the financial crisis but in June promised to let it respond more freely to market forces, but since then it has risen only about 2.0 percent against the U.S. dollar.

A desire to protect its economy led Japan to intervene in foreign exchange markets for the first time in six years last month to weaken the yen.

Many emerging markets have initiated measures to control capital flows in a bid to keep their currencies from appreciating too rapidly.

The U.S. Federal Reserve is considering printing more money to buy assets in the hope of speeding up the pace of U.S. growth to bring down high unemployment. The side effect is a weaker dollar that is fueling global tensions.