Markets not comfortable at all
As has been the case through 2016, a busy Asian session is setting a rather uneasy table for us here in Europe. News from China, Japan and New Zealand have all chipped in overnight and the overall market feeling is nervous. Friday sees the publication of the latest jobs numbers from the US, and the moves in Fed Fund rate expectations – thoughts on the probability of rate hikes by the Federal Reserve in the coming 12 months – have deteriorated so much that traders are unwilling to pledge too much to the pot at the moment.
There is now less than a 50/50 chance of another rate rise in the entirety of 2016; the Fed meeting in December hinted that policymakers wanted four rate hikes this year with the market seeing only two. The rally in GBP/USD has been a great example of this repricing.
Services to be boosted from retail cash
As Monday was manufacturing PMI day, today is the turn of the services sectors. Once again – and as was the case through the majority of last year – we are looking for services sectors in Europe, the UK and the US to benefit from low oil prices, higher consumer activity and falling unemployment. The UK is leading this fight at the moment; recent data has suggested that between the UK, US and Eurozone, British consumers are spending more of their heightened disposable income than the others. It is the British way after all.
Certainly in the US and Eurozone the picture is different; US consumers are saving proportionally more of the money following decent growth in consumption in recent years whilst in the Eurozone unemployment remains high enough to dissuade people from being overtly carefree with the cash in their pocket. Yesterday saw Eurozone wide unemployment confirmed at 10.5% in January – more than double that of Germany and the US.
As on Monday, Italy’s number is due at 08.45, France at 08.50, Germany at 08.55, and the Eurozone wide measure at 09.00 with the UK number due at 09.30 and the US’s ISM figure at 3pm.
Referendum certainty still way off
It is not a game changer by any stretch of the imagination but yesterday’s list of UK/EU referendum points did give sterling a brief boost. This is not a market sat here thinking that Cameron has done a great job nor it pricing in less of a chance of the referendum, ending with the UK leaving the EU. It is a simple reaction to an iotas more certainty – or less uncertainty – around the whole thing.
The points released yesterday alongside a debate and discussion on Friday brings us closer to a date on the vote being announced and therefore an ability for options and volatility markets to price in risks. It now looks almost a certainty that the referendum will take place on June 23rd.
Kiwis and the Day Ahead
The big mover overnight has been the New Zealand dollar after a massive improvement in the jobless rate in Q4 from 6.0% to 5.3%. This number backs up noises heard from the Reserve Bank of Australia earlier in the week – in broad terms the numbers from Antipodean economies are decent but external factors may weigh enough in the future for a loosening of monetary policy to be necessary. NZD is up 1.36% against the USD and 1.43% against sterling as we open up in Europe.
Elsewhere today we have the US ADP jobs number that some people, erroneously, use as a pre-cursor to Friday’s US payrolls number.