Week Opens Quietly After On-Trend Payrolls Data

Friday’s Non-Farm payrolls may have been one of the most boring reports in history, with the 155k jobs added in December coming in very close to the market’s estimates and tracking the previous 2 months. The longer-term trends also suggest that the US jobs market is looking a lot more stable than most people thought and ADP figures suggest that the private sector is happy to take up the slack afforded from government spending austerity. In a world that is still very uncertain, the US jobs market is bringing an element of foundation to the US economy, finally.

The weekend’s news has been very quiet and it seems a shame that the return to full liquidity in FX markets has been wasted on an open with no ground-breaking developments.

Friday’s services sector numbers were a real disappointment from the UK with a fall in PMI terms to 48.9. This was the lowest number in 4 years and brought the average for Q4 to 49.9, a slight contraction. Combine these with the contractions seen in the manufacturing and construction sectors also seen in Q4 and it is now odds on that we will see GDP for that quarter be negative.

David Cameron reiterated that the coalition government must sustain a “credible strategy” for controlling the budget deficit in an interview yesterday. He also talked down the importance of AAA credit rating, focusing on the interest rates on gilts instead. They have made a run above 2% in recent sessions and apart from a blip lower as a result of Xmas haven buying they have been trending higher since the Chancellor’s Autumn Statement. We do not expect this to last however, as the likelihood that the UK loses its relative haven status versus goings-on in the Eurozone remains minimal.

The key releases later in the week are the central bank movements from the Bank of England and the European Central Bank. While we are expecting a change of tack from the Bank of England later in the year, once Mark Carney takes the helm, we would think that this month’s meeting will be a quiet one with focus shifting to February’s Inflation Report.

The European Central Bank are also unlikely to move policy although a possible rate cut will stick in some investors’ minds in the run-up. We would expect Draghi to once again re-emphasise the willingness of the ECB to stand behind the region and its currency and that the recovery remains on-going.