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The Marketplace - January 8th 2015
08/01/2015
A quiet day for the UK yesterday but The Pound still lost ground against the continuous charge of the US Dollar. ADP Non-Farm employment figures from the US were above analyst predictions and this moved the GBPUSD pairing down by over a cent. The Pound is unlikely to recover today with only the Official Bank rate being announced at midday. Analysts expect the rate to remain at 0.5%.
The Euro had a mixed day with poor CPI Flash Estimate figures yesterday but unemployment remained at 11.5%.
Unemployment data from the US will be the main focus today.
Brighter Outlook Expected for British Manufacturers
Despite a challenging global backdrop, particularly in the Eurozone, British manufacturers saw orders grow at their fastest pace for four months in December, according to an industry report released yesterday with a brighter outlook seen for the coming months. The Confederation of British Industry's monthly industrial trends survey said 25% of firms reported that total order books were above normal in December, while 19% said they were below normal, giving a balance of 5%, the highest level since August and well above the survey average of -1%.
The CBI survey of 485 manufacturers also showed that 31% expected output in the next three months to grow, with 15 per cent predicting a decline, giving a balance of 16%, a three month high. Amongst the various sectors, output growth in Motor Vehicles & Transport Equipment stood out, rising to a nine-month high in December. Analysts have pointed out that markedly weaker oil prices are easing the pressure on manufacturers’ margins and increasing scope to price competitively.
Despite worries over the strength of manufacturing, the UK still looks set to grow more strongly than other industrialised economies this year, although the recovery has been largely reliant on consumer spending, raising questions about the long-term sustainability of the upturn.
German Ifo continues to climb
The Ifo Business Climate Index for industry and trade in Germany rose to 105.5 points in December from 104.7 points last month. Positive assessments of the current business situation remained unchanged. The outlook for the months ahead continued to brighten. Dropping oil prices and a falling euro exchange rate are seasonal gifts to the German economy.
In manufacturing the business climate continued to improve. Firms only slightly scaled back their assessments of the current business situation. After three months of negative figures, the business outlook for the next half year turned positive again in December. Exports continue to support German manufacturing.
In wholesaling the business climate indicator rose for the third month in succession. This was particularly due to far more optimistic expectations, while wholesalers assessed the current business situation as less favourable. In retailing, by contrast, the business climate clouded over. While retailers were more satisfied with the current business situation, they expressed greater pessimism about the months ahead.
In construction the business climate deteriorated marginally, but nevertheless remains at a very high level. Contractors slightly scaled back their favourable assessments of both the current business situation and the business outlook.
US Fed: Rates not likely to rise until April
Minutes from the latest US Fed meeting suggested that it is unlikely that the Federal Reserve will raise rates at its January or March meetings.
The Minutes also show that the Fed saw cheaper energy costs as a net positive for the US economy and the job market. The Fed did acknowledge, however, that the move higher in the dollar and the plunge in oil prices would pressure inflation in the near-term. With regards to future inflation conditions for interest rate hikes, the Minutes show that, "With lower energy prices and the stronger dollar likely to keep inflation below target for some time, it was noted that the Committee might begin normalization at a time when core inflation was near current levels, although in that circumstance participants would want to be reasonably confident that inflation will move back toward 2 percent over time."
ADP's December private payrolls report beat expectations, rising by 241,000. Expectations were for the report to show payrolls grew by 225,000 in December, up from 208,000 in November. November's report was also revised up to show payrolls grew by 227,000. This is one of two employment reports (initial jobless claims come out today), before the December jobs report is released on Friday. The market's focus this week has remained on oil and the surprising rally in long-dated US Treasury bonds. But with the important US jobs report looming, the market's attention will begin turning towards Friday's big number.
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