ECONOMIC DATA

  • SW Jan Swedbank PMI: 54.6 v 54.9e
  • SZ Jan SVME PMI: 61.6 v 60.3e || Prior revised from 61.3 to 60.8
  • IT Jan Manufacturing PMI: 50.8 v 50.5e
  • FR Jan Manufacturing PMI: 53.9 v 53.5e
  • GE Jan Manufacturing PMI: 54.4 v 53.6e
  • EU Jan Manufacturing PMI: 52.8 v 52.6e
  • UK Jan Manufacturing PMI: 50.6 v 52.5e || Prior revised from 52.9 to 52.4

SPEAKERS/COMMENTS

  • NISER: Forecasts that growth in the UK will decline to 2.0% in 2008 from 3.1% in 2007 || The CPI rate will be pushed up to 2.6% in the latter part of 2008 on high oil prices and the fall in the GBP || Consumer spending is expected to slow to 1.9% from 3.2% on the housing slowdown.
  • ECB Liebscher: Reiterates that the Euro-Zone economic environment is different from the US
  • ECB Liebscher: Reiterates that price stability remains the ECB’s primary goal

 FIXED INCOME/FX/COMMODITIES/ERRATUM

  • European fixed income futures are trading lower in the session on the back of a rise in the equity indices. There has been a gradual flattening across the European yield curves overnight, with gilt underperforming their European counterparts. With no major economic released data during the European session all eyes are focused upon the non-farm payrolls data due out in the US this morning. The current consensus for January non-farm payrolls is +70K. The market went bid earlier during the week when the ADP employment reading came in at +130K, well above the +40K expected, however, as history has shown, the accuracy of the ADP reading is questionable. According to an article in the NY Post today’s payrolls number could be shocking. For the January payrolls reading the Bureau of Labor Statistics applies the birth/death model. The article notes the death part of the model is only applied for the January reading, while the birth part is applied for all other readings. The article seeks to shed light on a factor that may distort today’s reading, and points out that the BLS subtracted 193K in 2006; 280k in 2005; 321K in 2004 and 211K in 2003. Finally, note that, following the close in the US yesterday, fed funds futures are currently pricing in a 72% probability that the Fed will cut rates by 50bps at the March meeting.
  • The European indices are broadly higher across the board today. In equity news overnight Shining Prospect, a Singapore based entity wholly owned by Chinalco and into which Alcoa has committed $1.2 billion by way of a convertible instrument, announced that it has acquired 12% of Rio Tinto existing share capital.  The companies confirmed that they do not currently intend to make an offer for Rio. Shares of Rio Tinto and Bhp Billiton rallied at the European open. Elsewhere Ericsson reported less than favorable earnings results, reporting its decline in profit since 2003. Ericsson also announced that it will cut around 4,000 jobs globally, the news dragging shares lower throughout the session. Ahead of the US equity open today Dow component Exxon Mobil is expected to report, along with other notables Chevron, Cummins Incorporated, Manpower, and Public Service Enterprise Group.
  • On the commodity front crude oil futures are currently holding above the $91-handle. OPEC has agreed to leave output unchanged, as expected. The delegate also said that OPEC was discussing the second-quarter outlook, but made not further comments on the matter. Spot gold is currently toying with the $930-handle, while silver and platinum reached new multi-year highs overnight. Today’s payrolls number could be a key for the near-term gold price outlook. Gold prices have risen significantly since the onset of the financial market turmoil on the back of safe haven flows and a weaker dollar. A negatively perceived reading on payrolls could spark some safe haven buying. 
  • This past week has been rather quiet in terms of central bank-speak, with particular quietude from the ECB. Perhaps this is a sign that the ECB has began to reconsider its steadfast commitment to price stability, or, the MPC members could simply be tired of regurgitating the much jaded mantra. Whatever the case is in fact, a recent survey of 56 economists showed that at least one economist was bold enough to forecast a 25bps rate cut at next week’s policy-setting meeting. In the case of the BOE, the general consensus is for a 25bps cut at next week’s meeting, however, a recent survey of 40 economists showed that at least one economist expected a 50bps cut, and at least one economist expected the BOE to hold rates at 5.50%.
  • In currencies, the USD was quiet ahead of the Jan non-farm payroll data. The EUR/USD around 1.4870, up about 10 pips since the start of session in Asia. Dealers continue to focus on the alleged 1.50 option strike that will expire at the NY cut (10:00am ET). Dealers are discussing the historical relationship between the January EUR/USD trading range and the overall trend for the duration of 2008 (see Feb TTN Monthly report). Shares of Rio Tinto up almost 20% this week are helping to keep the AUD tone firm near the 0.90-level.  There is some relief in the risk aversion theme after monoline insurer MBIA stated on Thursday that the company remains in a position to maintain its Triple-A ratings among public bond insurers. The EUR/JPY at 158.30, USD/JPY at 106.35 and GBP/JPY at 211.70