Markets
Trading centered around the official US labour market report today. Markets hovered up and down close to opening levels in the run-up to the publication. December US payrolls eventually disappointed somewhat. The US economy added 145k jobs (vs 160k expected) while the previous two months’ numbers faced a 14k downward revision. The manufacturing sector, hurt most throughout 2019, shed 12k jobs. The unemployment rate and participation rate stabilized at last months’ levels, respectively 3.5% and 63.2%. Average hourly earnings, closely monitored given upward US inflation risks this year, rose less than expected: 0.1% m/m and 2.9% y/y (vs 0.3% m/m and 3.1% y/y expected). It’s the first sub-3% reading since July 2018, but a statistical base-effect offers at least part of the explanation. The decent, but below consensus outcome caused a temporary spike higher in US Treasuries. Half an hour after the release, gains already evaporated, pulling core bonds back near pre-payrolls levels. Both the German and US yield curves shift around 1 bps higher with no difference across tenors. The reaction on FX markets was even smaller than the one on bond markets. The dollar fainted, but immediately recovered. The overall outcome for EUR/USD is a second straight low volatility session, flipping sides around the 1.11 pivot. The same is through for sterling markets. The UK currency recovered from yesterday’s dovish BoE Carney comments and EUR/GBP gently returned below 0.85. There’s no real story behind today’s sentiment-driven action. Next week we keep a close eye on the Chinese delegation visiting Washington to sign-off on the Phase 1 trade deal and on US inflation prints & retail sales.
News Headlines
Norwegian CPI fell below expectations in December. The headline inflation slowed to 1.4% y/y vs. 1.6% expected, the result of a bigger than expected monthly price decrease (-0.3% m/m vs. -0.1% expected). Core measures also showed falling prices in December (-0.2% m/m, 0.0% anticipated), leading to a deceleration to 1.8% y/y, coming from 2% last month. The Norwegian krone loses only marginally from EUR/NOK 9.86 to 9.88.
Canadian payrolls beat consensus in December as new jobs amounted to 35 200 while markets projected a 25 000 rise. Interestingly, job creation came solely from full time employment (38 400) whereas part time employment decreased with 3 200. The unemployment rate (5.60%) erased part the November uptick but comes as the participation rate declines. Hourly wage growth slowed more than expected though, falling from 4.4% y/y to 3.8%.
Europe’s bond market closes the first trading week of the year with a new record as bond sales have amounted to 92.5 billion euros. The typical rush at the start of the year has been given an additional boost from geopolitical jitters as issuers wanted to get deals done before any market deterioration would occur.
