U.S. Labor Statistics, Service-Sector PMIs, and a Focus on Some Central Banks

February 3, 2017

The dollar rose modestly overnight ahead of the U.S. jobs data, gaining 0.4% against the kiwi, 0.3% versus the yen, Swissie and sterling, 0.2% relative to the euro, loonie and Australian dollar, and 0.1% against the Mexican peso.

China reopened after a week celebrating the Lunar New Year. The dollar fell 0.2% against the yuan, and the Shanghai composite index declined 0.6%. The People’s Bank of China tweaked some short-term money market rates up a tad in a tightening gesture intended to limit capital outflows.

The Bank of Japan was also in the news, first permitting bond yields to rise above 0.10% without an immediate response and then scooping up a lot of debt with an unlimited purchase at a fixed rate that depressed the 10-year JGB to 0.09%. The BOJ also published minutes of its December meeting in which some Policy Board members expressed concern about the ability to sustain the commitment to keep the 10-year JGB yield around zero and wondered if the daily implementation of this plan should build in some unpredictability.

The Bank of Russia not only kept its interest rate steady again at 10.0% but signaled a reduced likelihood of cutting such during the first half of this year.

Today saw many service-sector purchasing managers indices (PMIs) reported and some PMIs for manufacturing, too.

Japan’s service and composite PMI scores of 51.9 and 52.3 in January were at 2-month lows. Service sector cost inflation climbed at the fastest pace in 28 months.

The private Hong Kong PMI slipped back under 50 to a 3-month low of 49.9, essentially conveying stagnation but not contraction.

China’s manufacturing PMI reported by Caixin fell 0.9 points to a 2-month low of 51.0 and was below analyst expectations.

India’s service and composite PMIs of 48.7 and 48.4 conveyed the slowest rate of contraction in 3 and 2 months, respectively.

The election of President Trump and start of his administration have been very, very good for Russia, where the composite PMI climbed 2.0 points to a 103-month peak of 58.3, and the services PMI, printing at 58.4, hit an 8-1/2 year high.

Standard Bank’s private PMI for South Africa slid 0.3 points to a 2-month low of 51.3.

The British services PMI fell back 1.7 points from a 17-month high to a 3-month low of 54.5 in January. It’s composit PMI of 55.5 was at a 2-month low but suggests a GDP growth pace of 0.5% per quarter at the start of the year.

Australia’s Performance of Services index had spiked upward in December to 57.7 from 51.1 in November but fell back to 54.5 this month.

Euroland’s composite PMI in January matched December’s 5-1/2 year high of 54.4, suggesting a GDP growth pace around 0.4%. The services PMI printed at 53.7, 0.1 point above its preliminary estimate and matching December’s score.

Within Euroland, the French composite PMI jumped 1.0 point to a 67-month high of 54.1. Ireland’s composite PMI of 59.3 constitutes a 10-month high, and its services PMI of 61.0 was the best reading since the British referendum on leaving the EU, which occured last June. The German, Spanish, and Italian composite PMIs of 54.8, 54.7 and 52.8 represent 4-, 3- and 3-month lows.

Sweden’s services PMI rose 1.2 points, breaking above the 60 barrier to 61.1.

Singapore’s private PMI  rose 0.4 points to a 2-month high of 51.0.

Italian CPI inflation accelerated to 0.9% in January (0.7% on a harmonized basis) from 0.5% in December.

Swedish industrial production took an unexpected 1.8% tumble in December, generating a 0.9% on-year decline versus a 1.8% 2016-over-2015 advance.

Turkish CPI inflation rose to 9.2% in December. PPI inflation accelerated even more sharply to 13.7%. Lira depreciation is fanning Turkish inflation.

Retail sales in the euro area fell 0.3% in December, defying market expectations of a slight increase. Sales posted a December-over December increase of just 1.1%, well below 12-month advances of 3.3% in October and 2.5% in November.

The U.S. jobs report was mostly strong. A 227K rise during January in non-farm payroll jobs beat expectations in the market by more than 50K. The increase in employment for October and November was revised upward by a combined 24K. The unemployment rate edged up 0.1 percentage point (ppt) but at 4.8% that’s a good thing. The Fed has been projecting little net change, and a steep fall of the jobless rate could force monetary officials to tighten more aggressively. The unemployment/underemployment also increased, reaching 9.4% from 9.2%. But both labor participation and the jobs to population ratio increased 0.2 ppts to 62.9% and 59.9%, respectively. Finally, average weekly hours worked remained at 34.4, but average hourly earnings growth settled back to 2.5% on year from December’s more elevated 2.9%. This was the one somewhat disappointing element of the jobs report but gives the Fed more leeway to pursue its gradual tightening course.

Also due from the U.S. today are factory orders and the ISM non-manufacturing purchasing managers survey.

Copyright 2017, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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