Notes From Underground: risk on risk off … and so it goes; and so it goes

We were back in form today as the risk on profile was back on. The EUR/YEN was well-bid as risk was the theme, but we want to watch the YEN to see if the correlation of YEN as the risk barometer is beginning to breakdown with the present political developements in Tokyo taking its toll. The S&PS Wednesday put on a significant rally to solidify the risk on profile.

Friday brings the unemployment data and the U.S. markets are anticipating a very robust number: some are looking for 500,000-plus. We will cover this in more detail tomorrow but if the equities continue to rally tomorrow, the JOBS report had better be as strong as advertised or the STOCKS will get hit. A strong JOBS number will not scare the interest markets as they have settled into the belief that the FED will be on hold until the EURO DEBT picture begins to clear. Strong employment growth with an accomodating FED is the salve that the erratic markets are looking for to help calm the jitters of global uncertainty.

Yes, we know the Canadians were the first of the central banks to move as they raised rates 25 basis points on June 1. Some analysts thought the BOC issued a soft statement and were disappointed that the BOC did not hike 50 basis points. We do not think the statement was soft but showed the bank’s concern about the European DEBT CRISIS and its ability to be a drag on global growth. The statement issued by the BOC was more about the weakness it saw in others rather than the realized strength in the Canadian economy. This is why the FED will be leery about upsetting the fragility of the global recovery. Question for the risk on crowd: Can the S&PS sustain its rally today?  The jobless claims will be the early mover and the market is looking for 450,000. If it comes in much lower and the S&PS rally the game will be on.

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