It was a fairly lacklustre session overnight - for equities that is - although I don’t think it was devoid of important information. Especially as we’ve seen weakness in some key economic indicators like payrolls and the manufacturing ISM.
The important information we saw last night came from the non-manufacturing ISM and the ADP employment report. Both of these reports show the weakness we’ve seen in other indicators may be anomalous. Indeed the non-manufacturing ISM shows the services sector, which is something like 80 per cent of the US economy, accelerated in January - the index up to 54 from 53. Importantly, the business activity, new orders and employment indexes all rose.
Over on the ADP employment report, it showed jobs growth of around 175,000 in January. If that’s replicated on Friday night (when we see payrolls), that’s a fantastic outcome – it’s strong jobs growth and more than sufficient to see the unemployment rate continue to fall. The downside of course is that the ADP employment report isn’t a great indicator for payrolls (in terms of magnitude). But it is something and it does add to the evidence that the weak jobs number we saw in the December report was a one-off.
Rates was where we saw the biggest impact of this data. Treasury notes have been seriously overbought following the ‘emerging market crisis’ and they gave some back last night. Yields were up 6 bps to 2.67 per cent on the 10-year. Not a bad effort all considered but yields are still down about 33 bps this year, bizarrely, following the Fed’s taper. The 5-year was up 3 bps at 1.49 per cent and the 2-year is at 0.31 per cent.
Wall Street was mixed at the time of writing, not really moved one way or the other by data or any news really. With about an hour to trade, the S&P is 0.3 per cent lower (1750), with the Dow up smalls (15445). The Nasdaq is currently off 0.4 per cent (4017). The European session was similarly muted with the Dax down 0.1 per cent, the CaC flat and the FTSE100 up 0.1 per cent.
Forex moves were fairy contained. The Australian dollar hovers around 0.8901, while the euro was 30 pips higher at 1.3533. The British pound was then off 20 pips or so to 1.630 and yen sits at 101.355.
Commodities generally found a modest bid. Gold was up $8 or so to $1259, although silver shot up 2.5 per cent. Copper was flat. Otherwise for crude, Brent was up 0.3 per cent ($106.2), while WTI was up a bit 0.2 per cent to $97.35.
Elsewhere the final estimate of the eurozone composite PMI was at 52.9 from 52.1 - there was a time when a move of a similar magnitude in the opposite direction would have sparked carnage. Eurozone retail sales went in the opposite direction and fell 1.6 per cent in December after a 0.9 per cent increase the month prior. In the UK, the services PMI slipped a bit - to 58.3 from 58.8.
In markets today, there are two key releases locally: trade and retail sales data at 1130 AEDT. The consensus is that retail sales rose another 0.5 per cent in December, with the December quarter increase up a strong 1.2 per cent (excluding price gains). Outside of the Australian data, we see German factory orders, the Bank of England’s rates decision (no change expected) and the ECB’s rates decision (also no change expected). US data includes initial jobless claims, the trade balance, unit labour costs and productivity numbers.
Have a great day…