UK Industry Output, Eurozone GDP, US Payrolls
Saxo Bank | Jan 10, 2014 06:30AM ET
Today’s most important piece of data is the US employment report. In addition to these three numbers, there will be plenty of other data releases today, from French monthly industrial production to India’s FX reserves, and also the Ifo Institute’s Eurozone economic outlook (15:00 GMT). With emerging markets suffering after the Federal Reserve’s decision to begin tapering, and Europe’s economic recovery being very fragmented, even normally minor data points could provide market-driving surprises, so do yourself a favour and note the daily releases. From the Fed, Jeffrey Lacker (13:45 GMT) and James Bullard (18:00 GMT) will be speaking today as well.
UK November Industrial Production (09:30 GMT). November’s production is expected to have increased by 0.5 percent from October, or 3.1 percent from year ago. The industry recovered nicely in 2013, although production is still far below the pre-crisis peak and even reaching the high of 2011 would take another strong year of growth. Note the downturn from the 2011 peak, as the recovery in the US entered a slow period and the euro crisis started in earnest.
Right now the US recovery again looks good and the euro crisis has been sidelined for the moment. It does sound a bit familiar, doesn’t it? The UK recovery is now a mainstream story, but the stronger GBP and the coming tightening of monetary policy could yet darken the picture.
EZ Q3 Gross Domestic Production (11:00 GMT). The real GDP in the third quarter is expected to have increased by 0.1 percent from Q2 and decreased by 0.4 percent from year ago. Initially-reported quarterly growth was 0.3 percent, and the second estimate reported in early December already changed the growth figure to 0.1 percent. Still, it would be sad news for people who have been touting the European recovery story. While there are pockets of growth, namely Germany, everyone else is effectively unchanged or contracting.
The sad part of this is that the decision makers can shrug off the bad data point: "Third quarter is old news, and the growth in US has accelerated and the purchasing manager indices are rising, so growth will begin in six months". So they promise, and so they have promised since the euro crisis began. The estimate will be provided by Eurostat.
US December Employment Report (13:30 GMT). The consensus forecast sees the non-farm payrolls increasing by 200,000, following increases of similar magnitude in November (203,000) and October (200,000). Unemployment rate in December is currently seen unchanged at seven percent. The payroll forecast has increased recently — before Thursday’s weekly jobless claims the consensus expectation for December’s gains was 191,000.
Some clever independent economists have put the number at significantly higher levels; Tim Duy opts for 245,000 and Andrew Zatlin has 238,000. Zatlin mentioned that a lot depends on seasonality adjustments: in December 2012, the storm ‘Sandy’ had a material effect on employment figures, which led to changes in the seasonal adjustments. Depending on how the adjustment is handled now, the payroll number could be 200,000 or 250,000. Other bloggers take the middle road for various reasons. Bill McBride for example expects 200,000. The highest estimate in the recent Bloomberg’s poll was from Deutsche, at 250,000.
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The high expectations seem to come from people who have combed the data and thrown out suspect inputs, and otherwise extrapolated the recent trends. The low expectations name the cold weather, which hurt businesses in December. Note that if the weather does turn out to have had a large negative effect in December, the expectations for January would be changed to the worse. As most of you know, the US has been suffering from unusually cold weather in January: it has been warmer in Finland than in Florida!
My guess is that a reading of 200,000 or less would be disappointing to the markets. I expect a high reading, but a volatile session, as investors try to find a view on the adjustments and the weather’s effects. The Bureau of Labor Statistics’ press release will be posted here.
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