Highlights
Core Bonds hit again
EUR/USD: Global repositioning propels the euro to new ST highs
Graph of the week
EUR/USD: finally time for a correction? Cap
Economic Data
Review: The Good & The Bad
US
Good News
Durable goods orders
US durables increased in December for a fourth consecutive month (4.6% M/M), by more than twice the rate expected.
Non-farm payrolls
US non-farm payrolls rose by 157 000 in January, very close to expectations. The previous figures were however sharply upwardly revised.
Manufacturing ISM
Contrary to most regional business confidence indicators, the US manufacturing ISM picked up sharply in January, rising from 50.2 to 53.1, while only a marginal increase was expected.
Michigan consumer confidence
The final figure of January Michigan consumer confidence showed a significant upward revision from 71.3 to 73.8, while only a marginal upward adjustment was expected.
Bad News
Consumer confidence
Conference Board’s consumer confidence weakened sharply in January, from 66.7 to 58.6, reaching its lowest level since November 2011.
Q4 GDP (advance estimate)
According to the first estimate, US Q4 GDP contracted by 0.1% Q/Q annualized, while a growth rate of 1.1% Q/Q (annualized) was expected. The details were less poor.
Initial jobless claims
US initial jobless claims edged sharply up in the week ending the 26th of January. Initial claims rose by 38 000 to 368 000, suggesting that distortions are starting to fade.
EMU
Good News
EC’s Economic Confidence
European Commission’s economic confidence improved for a third straight month in January. Economic confidence rose from 87.8 to 89.2, while a more limited rise was forecast.
Unemployment rate
The euro zone unemployment rate stabilized unexpectedly in December. The unemployment rate stayed unchanged at a downwardly revised 11.7%, while an increase to 11.8% was expected.
Manufacturing PMI
The final figure of the euro zone manufacturing PMI for January showed an upward revision from 47.5 to 47.9, a further increase from 46.1 in December.
Preview: Fairly light economic calendar this week
US
Last week, the US economic calendar was well-filled with some key US data on the agenda. While GDP disappointed, showing that the economy came to standstill at the end of 2012, the manufacturing ISM came out remarkably strong. As usually after the payrolls report, the economic calendar is thin this week, with only the non-manufacturing ISM, the weekly jobless claims and trade balance.
In December, the US non-manufacturing ISM rose unexpectedly, reaching its highest level since February 2012. For January, the consensus is looking for a slight decline, from 55.7 to 55.0, but despite the improvement in the manufacturing ISM, we believe that the risks are on the downside of expectations. The weakening in consumer confidence might weigh on the sector which can temporary push the index somewhat lower.
Last week, US jobless claims rose sharply, suggesting that the distortions due to the end of year holidays, are starting to fade. In the week ending the 26th of January, initial jobless claims increased by 38 000 to 368 000, while only a limited pick up was expected. For the week ending the 2nd of February, the consensus is looking for a slight drop to 360 000. We believe that another upward surprise is not excluded, although the upward surprise will be more limited.
Finally on Friday, the trade data are forecast to show a narrowing in the deficit. In November, the US trade deficit widened sharply led by a rebound in imports. As a result, net exports weighed on growth during the final quarter of the year. For December however, the consensus is looking for a narrowing in the deficit from $48.7B to $45.8B led by an increase in exports. Recently however, the trade data experienced strong volatility due to the hurricane Sandy and iphone sales. The consensus is close to the BEA estimates, which would be neutral for GDP.
EMU
Last week, the economic data in the euro zone continued to surprise on the upside of expectations, not only the confidence indicators, but more surprisingly even the unemployment data. Also in the euro area, the economic calendar is rather thin this week with only the final reading of the euro zone services PMI and the retail sales, besides some national production data.
According to the first estimate, euro zone services PMI rose from 47.8 to 48.3 in January, marking the third consecutive monthly increase. The final reading is forecast to confirm this outcome. We believe that the risks are for an upward revision as sentiment seems to have improved significantly, while also the final reading for the manufacturing PMI was upwardly revised.
Euro zone retail sales on the contrary are forecast to have remained poor in December. After a marginal uptick in November, retail sales are expected to have dropped by 0.5% M/M in December. Last week, German retail sales surprised already on the downside of expectations and also Spanish retail sales for December were poor. Therefore, we believe that the risks for the euro zone reading are on the downside too.
This week several national production data will be released, which should give us an indication about the euro zone reading, scheduled for release next week. After three consecutive monthly declines, it will be interesting to see whether euro zone industrial production finally picked up in December. On Thursday, the German and Spanish production data will be released, followed by the Italian and Greek production figures on Friday.
