Guarded Optimism After European Service PMI Releases and Ahead of U.S. Labor Report

February 3, 2012

The dollar is mostly marking time, with gains of 0.3% against the kiwi, 0.2% versus the Aussie dollar and 0.1% relative to the loonie, no change against the yen and yuan, and dips of 0.1% against the euro, Swissie, and sterling.

Pacific rim equities were mixed.  Share prices rose 0.8% in China, 1.0% in India, 0.6% in Singapore and 0.7% in Thailand, but equities slid 0.5% in Japan, 0.6% in South Korea, 0.4% in Australia, 1.3% in The Philippines and 0.3% in Sri Lanka where the central bank surprised analysts with an interest rate hike.  European stocks are moderately higher, with gains of 0.5% in Paris and London and 0.4% in Frankfurt.

Oil and gold prices have firmed 0.5% to $96.87 per barrel and 0.2% to $1762.50 per ounce.

The 10-year British gilt yield is two basis points higher, while its Japanese counterpart has slipped one basis point to 0.95%.  German bunds are steady.

Still no Greek debt deal.  Greece’s finance minister spoke of hard talks and declining deposits from the banking system.

There has been another slew of purchasing manager survey releases, this time for services and composite activity in both services and manufacturing.

  • Japan’s service sector PMI rose 0.6 points to 51.0 in January.  Business optimism about the future was especially buoyant.  Japan’s composite index climbed a full point to 51.1, highest since October, and included a decline in price pressure.
  • Australia’s services PMI swung from a sub-50 reading of 49.0 in December, meaning contracting activity, to 51.9 in January.
  • Russia’s service sector PMI rose 2.7 points to a six-month high of 56.5, which also was back in line with the long-term average score.  Russia had a composite reading of 54.4.
  • India also showed a quickening rate of expansion.  The service sector PMI jumped 3.8 points to 58.0.  The composite score of 59.6 was 4.9 points better than in December.
  • China’s improved services PMI of 52.5 after 52.3 in December only matched November’s reading but remained well below its long-term mean of 56.8.  Business sentiment remained soft last month, and the composite PMI according to the HSBC calculations was marginally under 50 at 49.7.
  • Hong Kong’s services PMI advanced above 50 for the first time since July, printing 2.2 points higher than in December with a reading of 51.9.
  • The British services PMI, like the earlier reading for manufacturing, easily surpassed analyst expectations and suggests that growth may return to the black this quarter, thus averting a technical recession.  The reading for January of 56.0 was two points better than in December, a 10-month high, and up from 51.3 just three months earlier.
  • Euro area PMI results also showed that Europe started 2012 on a considerably better footing than had been feared.
  • The Euroland services PMI printed at 50.4 after 48.8 in December, 47.5 in November and 46.4 in October.  Such hadn’t scored over 50 since August.  Germany’s 53.7 reading constituted a 7-month peak.  The French reading of 52.3 was the best in 5 months. Spain’s 46.1 exhibited the slowest rate of contraction in six months.  Italy’s 44.8 was at a 2-month high but accompanied by the most input price pressure since September 2008.
  • Euroland’s composite purchasing managers index of 50.4 was 2.1 points better than in December and 3.9 points higher than in October.  Germany returned to a decent pace of growth with a 53.9 reading (best in 7 months).  The French score of 51.2 also surpassed the 50 threshold and was its highest in 5 months.  Spain (46.0) had a shallower rate of contraction.  The Irish score of 47.9 was weaker, and the Italian tally of 45.7 was deeper in the red.

Activity in the euro area may be stabilizing, but retail sales remain soft.  Their volume unexpectedly fell by 0.4% for a second straight time in December.  Retail sales slumped 2.6% at an annualized rate last quarter after dipping just 0.3% annualized between 2Q and 3Q11. 

Two central banks made interest rate announcements.  Sri Lanka’s repurchase rate was hiked unexpectedly by a half percentage point to 7.5%.  In Russia, Bank Rossii left its refinancing rate unchanged at 8.0%, which was the decision that analysts had been expecting there.

Italian harmonized consumer price inflation ticked downward to 3.4% in January from 3.7% in December.  Analysts had predicted a smaller improvement.

Turkish consumer prices rose 0.6% on month and accelerated for a fourth straight time to 10.6% on year in January.  PPI inflation slowed to 11.1% from 13.3% in December.

Canadian labor statistics for January were not as good as predicted or hoped.  Unemployment rose by 21.3K and to 7.6% from 7.5% in December.  The jobless rate has backed up a half percentage point in just four months from 7.1% in September.  Jobs grew merely 2.3K last month and were just 1.2K higher than in October, a 3-month annualized advance of 0.03%.  Jobs were 0.7% greater than in January 2011, barely eclipsing the 0.6% increase of Canada’s labor force.

The U.S. labor force survey due in just under an hour is expected to retain an 8.5% unemployment rate, which is down from 9.1% in August, and to show around 140K growth in new jobs.  Other U.S. data scheduled for today are the service-sector purchasing managers survey results and factory orders.  The Nevada caucus is later.  Bernanke’s testimony yesterday held no surprises.  The Fed’s bias remains supportive of economic growth, the banking system and stocks.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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