US unemployment continued to slide in December with a decline to 5.6% reported. The reading, below the 5.8% level of November and expectations for a decline to 5.7%, was the lowest level seen since June 2008. Overall payrolls increased by 252k, below the upwardly-revised 353k pace of November but ahead of expectations for an increase of 240k, with the figure taking total gains for 2014 to 2.952m, the largest increase seen since 1999. Adding to the bullish headline print underemployment fell 0.2% to 11.2%, a level last seen in September 2008, with those persons employed part time for economic reasons, essentially those who would prefer to be working full time, sliding by a further 61k to 6.79m. While that was strong there were areas of weakness scattered throughout the report with labour market participation tumbling 0.2% to 62.7%, the equal-lowest level seen since February 1978. Elsewhere the household survey reported an increase in employment of only 111k, well below that reported for payrolls, while average hourly earnings, something that will have to trend higher in 2015 if the FOMC are to meet their 2% inflation target given external disinflationary pressures, fell sharply, dropping 0.2% following a downwardly-revised 0.2% increase in November. Not only was the decrease the largest recorded since records began in 2006 but left the annual increase at 1.7%, the slowest expansion seen since October 2012. While some put the decline down to younger, less-experienced workers joining the workforce, a group that traditionally would be paid less than experienced workers, it must be noted that from 2006 to 2013 wages had never fallen in December with the 0.1875% monthly average roughly in line with the total series average. A mixed payrolls report for December then. It’s clear that US labour market conditions continue to improve; every singly industry group added to payrolls during the month, total unemployed fell by 383k taking the total for 2014 to 1.688m with the unemployment rate dipping to a 6 ½ year low despite being flattered by participation. Still, despite the obvious tightening in labour market conditions, wages growth remains elusive. At 1.7% the annual rate is anaemic and unlikely to spur any significant inflationary pressures, at least in the short-term. While the unemployment rate is now approaching levels that traditionally herald wage inflation, until that becomes evident, the FOMC’s policy tightening schedule for 2015 looks overoptimistic and frankly, unwarranted.

Canadian unemployment held steady at 6.6% in December, in line with expectations, with a 0.1% fall in labour market participation to 65.9% offsetting a surprise 4.3k decline in employment. In total full time workers jumped by 53.5k following a 5.7k increase in November while part time employment decreased by 57.7k following a 16.3k decline reported previously.

The value of Canadian building permits plummeted in November with a decline of 13.8% reported. The reading, well below the upwardly-revised 2.1% increase of October and expectations for a further gain of 0.5%, was the steepest month-on-month decline since August 2014. The value of both residential and non-residential permits fell during the month with a huge 29.2% drop for the latter largely to blame for the ugly headline miss. Doubling up on weak housing data starts slipped to an annual pace of 180.6k in December, well down on the 193.2k rate of November and forecasts for an increase to 193.5k, with the increase the weakest seen since March 2014.

German industrial output fell by 0.1% in November. The reading, below the upwardly-revised 0.6% increase of October and expectations for an expansion of 0.4%, was driven by declines in energy and construction output with manufacturing the only component to expand with an increase of 0.3% reported. Adding to the disappointment there French output slipped by 0.3%, the third month in four that a contraction has been recorded, with the figure well below expectations for an expansion of 0.3%. As opposed to Germany a 0.6% decline in manufacturing output was largely to blame for the headline miss. Completing the hat-trick of sub-par industrial releases UK output contracted by 0.1%, below the 0.2% expansion expected, with the annual rate ticking up to 1.1% from 1.0% in October. Four of five industry components fell during the month although manufacturing, at +0.7%, was a particularly strong result.

Germany’s trade surplus narrowed to €17.7b in November. The figure was below the €20.8b level of October and expectations for a small decrease to €20.7b with a combination of sharp drop in exports, down 2.1% on month, and a 1.5% increase in imports behind the slightly disappointing result. While Germany’s numbers disappointed there was better news to the West with the UK trade deficit narrowing to £1.406b. The reading, the lowest level since June 2013, was helped by lower oil imports with the goods trade deficit narrowing to £8.848b, a level last seen in March 2014.

Ratings agency Fitch overnight downgraded Russia’s sovereign rating to BBB- from BBB. The agency kept the nation on watch negative, something that indicates that further near-term actions are possible. Given BBB- is the lowest investment grade any further downgrades will see the nation’s debt deemed ‘junk’ status.

More chatter on possible ECB quantitative easing overnight, this time from Bloomberg, with the newswire publishing a story suggesting the Bank are looking to make €500b in investment-grade bond purchases to help spur economic activity. For those who are interested the article can be accessed here.


Monday’s Session Ahead (AEDT)

The ASX 200 looks set to open weaker with SPI futures pointing to a fall of 40pts on the open.

The AUDUSD closed last week sharply higher in response to weak wages growth in the US non-farm payrolls release. At .8201 it appears likely that the pair will move above .8216 on Monday, the high struck back on December 31.

Japanese markets will be closed for the ‘Coming of Age’ Holiday.

Domestic data releases include the ANZ job ads survey for December along with housing finance data for November. Both are scheduled for release at 11.30am.

A quiet economic calendar Monday evening with industrial output, CPI and trade figures from India, German wholesale price inflation and Russian CPI the only releases of note. On the policy front Dennis Lockhart, Atlanta Fed President and 2015 FOMC voter, is also schedule to speak in the early hours of tomorrow morning.


Market Map Jan 10 2015



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