Today’s report will be the last for 2014. I’d like to take this opportunity to thank you all for your support over the course of this year. I hope to continue the market commentary and analysis in 2015, be it under the Scutt Partners name or for another party. If you feel that I could offer value for your firm please feel free to get in touch. In the meantime I wish you, your family and friends a very Merry Christmas and a safe and happy New Year. David.
US service sector growth slowed sharply in December with Markit’s flash PMI gauge falling to 53.6. The figure, below the 56.2 level of November and expectations for an increase to 56.9, was the lowest level seen since February. In what is a slightly concerning development for the largest sector within the US economy growth has now decelerated for 6-straight months with gauges on new business activity, a lead indicator for future activity, and employment falling to lows not seen since March and April respectively.
US initial jobless claims fell to a fresh 1-month low last week with a decline to 289k reported. The reading was below the 295k pace of the previous corresponding week, also the same level eyed for this week, with the 4-week series average dipping slightly to 298.75k from 299.5k seen previously.
Manufacturing conditions across the Northeast of the United States deteriorated slightly in December with the Philadelphia Fed business index slipping to 24.5. The reading, well below the multi-decade high of 40.8 struck in November and expectations for a decline to 27.0, was led by falls in new orders (-20pts), employment (-15.2pts) and the 6-month business outlook (-5.8pts) which fell to 15.7, 7.2 and 51.9pts respectively.
German business confidence edged higher in December with the IFO’s business climate index rising to 105.5. The reading, higher than both the 104.7 level of November and expectations for an increase to 105.4, was the highest level seen since September. All of the increase was driven by the expectations measure which rose 1.4pts to 101.1.
UK retail sales volumes surged by 1.6% in November. The figure, the largest month-on-month gain since December last year, was well ahead of the upwardly-revised 1.0% increase of October and expectations for a further rise of 0.3%. Given strong growth in sales in the past two months the annualised rate of growth jumped to 6.4%, the highest level seen since May 2004. Topping even those bullish figures core sales, that which excludes fuel, increased by 1.7% on month with annual growth surging to 6.9%. ‘Black Friday’ sales, something that helped drive record annual growth in electrical and department stores, is believed to be the main factor behind the impressive monthly reading. Still, with deep discounting driving volumes, it was interesting to note that retail prices fell by 2.0% compared to a year earlier, the steepest decline reported since August 2002.
Overnight the Swiss National Bank (SNB) expanded their 3-month LIBOR target range and introduced negative deposit rates in an attempt to reinforce the 1.20 floor for the EURCHF exchange rate. The 3-month LIBOR range was widened to -0.75% to +0.25% with deposit rates lowered to -0.25% in response to ‘a number of factors (that) have prompted increased demand for safe investments’ in recent days. In an accompanying press conference Thomas Jordan, SNB Chairman, admitted that the ‘worsening crisis in Russia was a major contributing factor in this development’.
The Day Ahead (AEDT)
The ASX 200 looks set to extend its rally today with SPI futures pointing to a rise of 78pts on the open. Despite options expiry yesterday, something will boost turnover today, volumes will be light meaning the index will likely melt higher throughout the day on the back of miniscule volumes. Indiscriminate buying is back and fundamentals are out the door – clear signs that Santa Rally has now hit our shores.
The AUDUSD has pushed higher overnight, largely on the back of the ‘risk on’ mood seen in European and US equities, with the pair currently fetching .8167. While it has tried and failed on numerous occasions to break a strong downtrend stemming from mid-November, with market participants thinning out and short positioning still in place, the odds of an upside break appear to be growing at present. Today the downtrend kicks in around .8190 with further resistance located at .8200, .8240 and again at .8260. On the downside buyers are located at .8140 and ahead of .8100.
Data releases this evening include consumer confidence and producer price inflation from Germany, public sector borrowing and retail turnover from the UK, industrial orders and sales, along with wage price inflation from Italy, CPI and retail sales from Canada, the Kansas City Fed manufacturing index from the States along with the latest Business climate index in France.