Market movers today
In the euro area, the preliminary PMI figures for January are due for release. Both manufacturing and service PMIs rose yet again in December, climbing to 60.6 and 56.6 respectively. Activity remains high in the euroarea and we expect the PMIs to remain at high levels. However, in line with the decline observed in IFO expectat ions in December, we believe January’s PMI will show a decline. We estimate manufacturing PMI at 60.1 and service PMI at 56.2.
In the UK, the jobs report for November is being released today. There are some signs that employment is no longer increasing at the same pace as previously or possibly has even stagnated. So, in this jobs report we will look for signs of whether this was just transitory or not . We est imate the unemployment rate (three-month average) was unchanged at 4.3%. We estimate the annual growth in average weekly earnings ex bonuses (three-month average) declined to 2.2% y/y from 2.3% y/y, underlining that there is no big wage pressure present in the UK yet .
In the US, the important preliminary PMIs release for January are due out . Although Markit PMI manufacturing trended up over the past six months, it is st ill a puzzle that the index is below the equivalent ISM manufacturing index. Given the big discrepancy, we think Markit PMI could rise further although the bad weather may have pulled in the other direct ion. We estimate an increase to 55.7 from 55.1. Since August , Markit PMI services has fallen 2.3 index points to 53.7, which we think is too much – we expect a rebound to 54.5.
In Sweden, Flodén is due to talk about monetary policy and the economic out look and Prospera inflation expectations are due out.
Selected market news
Earnings set the tone for US equity markets last night with both the S&P500 and the NASDAQ indices trading higher. The bearish momentum in the fixed income market seems to have faded ahead of tomorrow’s ECB meeting and after the dovishtone from the Bank of Japan yesterday. Yields on 10Y US Treasuries were little changed last night , still trading around 2.62%.
In Asia, risk sentiment is generally weaker this morning. In particular, Japanese equity markets are trading lower along with an appreciation in JPY. USD generally sells off and the broadbased dollar index, the DXY index, has dropped below 90 for the first time since January 2015. The sell-off in Japanese equities comes after the Nikkei index yesterday rose to the highest level since 1991 and thus looks very much like a correct ion driven by profit taking and a weaker USD.
Yesterday, the US Senate officially confirmed Jerome Powell as the next Fed Chair when Yellen’s term expires on 3 February. This was as expected, but it has taken a long time for the Senate to actually approve Powell as Yellen’s successor. We expect him to stick to the current monetary policy strategy in the short run by raising the Fed funds target range three times this year. The first one is expected to come at the March meeting, the first meeting he chairs.
