Daily Market Update 13 January 2014 - US economic upswing put on ice?

Daily Market Update 13 January 2014 - US economic upswing put on ice?

Talk of a strong US economic upswing was temporarily put on ice in December, no pun intended, with non-farm payrolls rising by a paltry 74k from a month earlier. The result was well below the upwardly-revised 241k pace recorded in November and expectations for an increase of 197k and was the slowest pace of employment growth recorded since January 2011. Despite the ugly headline print, the unemployment rate dropped to just 6.7%, the lowest level seen since October 2008, although this was largely due to yet another sharp drop in labour market participation which at 62.8% stands at the equal-lowest level seen since 1978.  Complementing weakness elsewhere in the report, hourly earnings and average workweek were both on the weak side, printing at +0.1% and 34.4 hours against expectations for readings of +0.2% and 34.5h respectively. While adverse weather was sighted for the headline miss, with current conditions arguably worse than what was seen in December, it does raise questions over what impact the weather will have on the economic recovery, along with the future path of asset purchase tapering as outlined by the Federal Reserve.


Making the US figure look almost good, Canada’s labour market deteriorated sharply in December with a net decline in employment of 45.9k recorded. The figure was well below the 21.6k increase of November and expectations for an rise of 14.1k and was the sharpest monthly decline seen since March 2013. Doubling-up on the bad news, all of the losses came from the full-time workforce, declining 60k, with the national unemployment rate soaring to 7.2% from 6.9%, the highest level seen since July 2013. While traditionally a volatile release and no doubt impacted by the weather, the outcome came as a major shock to markets with unemployment back to levels not seen since the start of 2013.


French business sentiment fell fractionally in December with the Bank of France reporting a decline to 100. The reading was in line with expectations but below the 101 reading of November with deterioration in order levels and capacity utilisation partly mitigated by improved readings for production and activity heading into January.


French industrial production soared in November with an increase of 1.3% recorded. The figure was above both the downwardly-revised 0.5% decline of October and expectations for an increase of 0.4% and left the annualised increase at +1.5%, the fastest pace of growth seen since August 2011. Despite the strong headline figure, much of the increase was due to a rise in electricity and gas production, +8.1% on month, with manufacturing growing at just 0.2%, in line with market expectations. 


Spanish industrial output outperformed expectations in the year to November, increasing +2.7% against forecasts for a rise of +2.2% after work day adjustments. The reading was only the second time in two and a half years that output had expanded and was the largest increase recorded since August 2011.


UK industrial production missed expectations in November with flat growth recorded for the month. The reading was below the downwardly-revised 0.3% increase of October and expectations for a rise of 0.4% with the year-on-year rate falling back to +2.5% from +3.2% previously. Mirroring the headline figure, manufacturing output held steady during the month, something that was expected to expand by 0.4%, with a 3.0% lift in electricity, gas and steam output offset by a 3.0% decline in oil and gas production.


UK construction output plunged in November with a decrease of 4.0% reported. The fall, well below expectations for an increase of 0.8%, was the sharpest monthly contraction seen since June 2012 and left the annual rate of growth at a 7-month low of +2.2%.


India industrial production slumped in the year to November with a decline of 2.1% reported. The reading was below both the upwardly-revised 1.6% contraction recorded in the year to October and expectations for an increase of 0.8% with the decline the largest seen since May 2013.


India’s trade surplus rose modestly in December with an increase to $10.14b recorded. From a year earlier exports rose by 3.5%, below expectations for an increase of 6.8%, while imports, helped in part by a 69% decline in gold and silver deliveries, fell by -15.3% against expectations for a contraction of -15.0%.


The Day Ahead (All times AEDT)

The ASX 200 looks set to open fractionally weaker this morning with SPI futures pointing to a decline of 4pts on the open. However, having underperformed last week and with commodities ex-iron ore up strongly on Friday evening, it wouldn’t surprise to see the index eke out a modest gain today on the back of the materials sector.


The AUDUSD has opened the new week battling resistance at the .9000 level with the pair currently fetching .8997. Should the Aussie manage to break this level, something that will have to be assisted by strong domestic data at 11.30am, the next port of call is likely to be the 23.6% Fibonacci retracement level of .9042. On the downside, support will kick in at .8982, .8971 and again at .8952. 


Australian data releases today include lending finance commitments for November along with the ANZ job ads survey for December.


A quiet economic calendar this evening with CPI figures from Greece and India, along with Italian industrial production, the only releases of note. On the Fed front, Atlanta President Dennis Lockhart will speak in the early hours of tomorrow morning. 


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