Dollar rises to four month high after latest FOMC minutes are released Wednesday evening
The ADP private payroll data from the USA came in ahead of expectations on Wednesday at 238K jobs created in December, with an anticipation of 199K. This print is adding to belief that the NFP number, to be printed this Friday, will also ‘surprise’ the market with a better than forecast print. The anticipation is for a figure of 194K, but expectation may now have risen for a much better print, perhaps 220K+. The recent six month low was 148K in October 2013.
In Europe the retail figures came in better than expected on Wednesday, up 1.4% in the month of November versus October. However, any good market cheer this may have caused was hurt by poor employment numbers published earlier in the day; Italian unemployment has reached a recorded high, participation rate at a disastrous 55%, whilst the overall EU measurements for the 17 nation shared currency users and the wider EA28 remained static at 12.1% and 10.9% respectively.
According to the minutes of the most recent FOMC meeting released on Wednesday evening Federal Reserve officials approved their modest decrease in the monthly asset purchasing program in December as a tentative first step towards “policy normalization”. Details from the meeting also showed that the Fed is pursuing a course dependent on economic progress and not set in stone. The Open Markets Committee voted to cut the purchases from $85 billion to $75 billion a month, but gave no indication that a future course is preset. Only FOMC member Eric Rosengren dissented from the vote to taper, calling the decision “premature.”
Many members judged that the committee should proceed cautiously in taking its first action to reduce the pace of asset purchases and should indicate that further reductions would be undertaken in measured steps. Members also stressed the need to underscore that the pace of asset purchases was not on a preset course and would remain contingent on the committee’s outlook for the labor market and inflation as well as its assessment of the efficacy and costs of purchases.
While deciding to modestly reduce its pace of purchases, the committee emphasized that its holdings of longer-term securities were sizable and would still be increasing, which would promote a stronger economic recovery by maintaining downward pressure on longer-term interest rates, supporting mortgage markets, and helping to make broader financial conditions more accommodative. Some members, though, said they preferred the Fed cut back on purchases even more than the $10 billion reduction “and future reductions that would bring the program to a close relatively quickly.
Volume of retail trade up by 1.4% in euro area
In November 2013 compared with October 2013, the seasonally adjusted volume of retail trade1 rose by 1.4% in the euro area (EA17) and by 1.2% in the EU28, according to estimates from Eurostat, the statistical office of the European Union. In October retail trade decreased by 0.4% and 0.5% respectively. In November 2013 compared with November 2012 the retail sales index increased by 1.6% in the euro area and by 2.0% in the EU28. In November 2013 compared with October 2013, “Food, drinks and tobacco” increased by 1.1% in the euro area and by 0.9% in the EU28. The non-food sector increased by 1.9%.
Euro area unemployment rate at 12.1%
The euro area (EA17) seasonally-adjusted unemployment rate was 12.1% in November 2013, stable since April. The EU28 unemployment rate was 10.9%, stable since May. In both zones, the rates increased compared with November 2012, when they were 11.8% and 10.8% respectively. These figures are published by Eurostat, the statistical office of the European Union. Eurostat estimates that 26.553 million men and women in the EU28, of whom 19.241 million were in the euro area, were unemployed in November 2013. Compared with October 2013, the number of persons unemployed increased by 19 000 in the EU28.
US Private Sector Employment Increased by 238,000 Jobs in December
Private sector employment increased by 238,000 jobs from November to December, according to the December ADP National Employment Report. Broadly distributed to the public each month, free of charge, the ADP National Employment Report is produced by ADP, a leading global provider of Human Capital Management (HCM) solutions, in collaboration with Moody’s Analytics. The report, which is derived from ADP’s actual payroll data, measures the change in total nonfarm private employment each month on a seasonally-adjusted basis. Goods-producing employment rose by 69,000 jobs in December.
Market overview at 10:00 PM UK time Wednesday January 8th
Euro indices experienced a marginal retreat on Wednesday with the UK FTSE the only major sell off during the afternoon session on Wednesday. Euro STOXX closed down 0.01%, CAC down 0.04%, DAX down 0.09% and the UK FTSE down 0.50%. The euro STOXX equity index future is down 0.10%, the DAX future is down 0.20% and the CAC future is flat. The UK FTSE future is down 0.38%.
The DJIA closed down 0.41%, the SPX down 0.02% and the NASDAQ closed up 0.03%. The DJIA equity index future is currently down 0.30%, the SPX future is up 0.10% and the NASDAQ future is up 0.45%.
NYMEX WTI oil closed the day down 1.20% at $92.55 per barrel with NYMEX nat gas was down 2.23% on the day to $4.20 over therm. COMEX gold was down 0.44%, on the day at $1224.20 per ounce with silver on COMEX down 1.43% at $19.50 per ounce.
Forex focus
The dollar gained 0.4 percent to $1.3566 per euro after appreciating to $1.3554, the strongest since Dec. 5th. The U.S. currency rose 0.3 percent to 104.86 yen after climbing to 105.44 on Jan. 2, the highest since October 2008. The yen rose 0.1 percent to 142.47 per euro. The dollar rose to a four-month high after the minutes of the Federal Reserve’s last meeting showed officials saw diminishing economic benefits from bond-buying and expressed concern about risks to financial stability.
The Dollar Spot Index, tracking the currency versus 10 of its major counterparts, rose 0.3 percent to 1,029.29 late in New York after gaining 0.3 percent Tuesday. It touched 1,030.12, the highest level since Sept. 9th.
The loonie, as the Canadian currency is known, sank as much as 0.6 percent to C$1.0829 per U.S. dollar, the weakest since May 2010, before trading at C$1.0806 afternoon in Toronto, down 0.4 percent. One Canadian dollar purchases 92.54 U.S. cents.
Futures of crude oil, Canada’s largest export, sank as much as 1.5 percent to $92.26 a barrel in New York, the lowest level since Nov. 29th. The Canadian dollar slid below C$1.08 per U.S. dollar for the first time in more than three years after Bank of Canada Governor Stephen Poloz stated that he’s under no pressure to raise interest rates.
The pound gained 0.7 percent to 82.46 pence per euro late London time after appreciating to 82.44 pence, the strongest level since Jan. 11th, 2013. Sterling rose 0.4 percent to $1.6466 after advancing to $1.6603 on Jan. 2nd, the highest since August 2011. The pound rose to the strongest level in a year versus the euro on speculation that Britain’s economic growth will outpace that of its European peers this year.
Bonds
The current 10-year yield rose five basis points, or 0.05 percentage point, to 2.99 percent mid-afternoon New York time. The 2.75 percent note due in November 2023 fell 14/32, or $4.38 per $1,000 face amount, to 97 30/32. The yield climbed to 3.05 percent on Jan. 2nd, the highest since July 2011.
Ten-year securities lost 7.8 percent in 2013, the biggest drop since a 9.7 percent slide in 2009, Bank of America Merrill Lynch indexes show. Treasuries fell after the Federal Reserve’s policy-meeting minutes added to speculation the central bank will further slow its monetary stimulus and as the U.S. auctioned $21 billion of 10-year notes.
The U.S. sale of $21 billion in 10-year notes drew the highest yield at an auction of the security in two-and-a-half years as investors made bets that improving economic data may accelerate the Federal Reserve’s pace of stimulus cuts.
Fundamental policy decisions and high impact news events that may affect market sentiment on January 9th
Thursday France’s balance of payments data is predicted to fall slightly to -€4.7 bn, whilst the UK’s is expected to come in down -€9.4bn for the month. German industrial production is expected in up 1.6% month on month.
The UK’s base rate, as set by the UK’s BoE, is expected to remain at 0.5%, whilst the asset purchase scheme is expected to remain at £375 bn. Europe’s ECB are also expected to keep the base borrowing rate at 0.25%. A European ECB press conference will then be held later on in the afternoon session.
In the USA the Challenger jobs cuts are expected to print close to the previous month’s down 20.6%. Housing starts in Canada are anticipated in at 197K, up from 192K in the previous month. Building permits are forecast to have fallen by 2.3%. Unemployment claims in the USA are expected to come in at 337K, virtually identical to the previous level published. The final high impact news event of the day is published late on with China’s trade balance expected in at a positive 32.6bn for the month.
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