With the Pacific G10 Macro Rates Team
Global Macro Overview
Coronavirus related headlines continued to dominate financial markets last week. Once again G10 interest rates paid little attention to strong fundamental data with government bonds selling off in the first half of the week and then rallying back into the weekend.
US: As usual Friday’s employment report was the highlight of the first week of the month and the data was unequivocally strong. The US economy created 225k jobs in January (165k exp., 147k prev.) and average hourly earnings increased 3.1% yoy (3% exp., 3% prev.). Labour force participation rate ticked slightly higher lifting unemployment to 3.6%. Earlier in the week a strong ISM survey showed improved sentiment across Manufacturing and Non-Manufacturing sectors with the former coming in at 50.9 (48.5 exp., 47.8 prev.) and the later at 55.5 (55.1 exp., 55 prev.). Factory orders were also strong in December, increasing by 1.8% vs. the expectations for a 1.2% increase and finally, initial jobless claims continued to stay low at around 200k.
Canada: Labour market figures reported on Friday mirrored the strength from their southern neighbour. The Canadian economy created 34.5k jobs in January with 35.7k increase in full-time employment. Year-on-year growth of average hourly wages continued to track to 4% with the latest number coming in at 4.4%. Earlier in the week, Markit Manufacturing PMI for January was released at 50.6.
Eurozone: In contrast to the US and Canada, Eurozone data was weak last week. Factory orders in Germany unexpectedly dropped -2.1% mom (0.6% exp.) and industrial production dropped -3.5% mom (-0.2% exp.). Similarly, manufacturing and industrial production were disappointing in France with the former dropping -2.6% and the later dropping -2.8% in December. On the brighter side, Italy reported good PMI numbers with Manufacturing at 48.9 (47.3 exp., 46.2 prev.) and Services at 51.4 (50.5 exp., 51.1 prev.). Retail Sales in Italy increased by 0.5% in December after a -0.2% decrease in November. Finally, Spanish PMIs were weaker with Manufacturing at 48.5 (48.7 exp.) and Services at 52.3 (54 exp.) and Unemployment increased by 90.2k.
Sweden: Strong PMIs for January with Manufacturing at 51.5 (47.6 exp., 47.7 prev.) and Services at 52.5 while production numbers for December disappointed, decreasing -0.4% mom.
Norway: Weaker GDP numbers for Q4, with only a 0.2% increase against the expectations for a 0.3% still modest against the 0.6% increase in Q3. Manufacturing PMI in January was reported lower at 50.9 (54.4 exp., 55 prev.).
Limited data from Japan last week, yoy growth of labour cash earnings in December was depressed by bonuses coming out at 0%. Household spending disappointed in December with 4.8% drop (-1.7% exp.). Leading index was slightly higher at 91.6 (91.3 exp., 90.8 exp.).
Without significant UK data, the GBP and Gilt markets were driven by the risk-on/risk-off environment in global markets and trade-related news.
Australia: The RBA did not surprise markets, which were not expecting any action, and left interest rates unchanged. The decision was followed by a hawkish rhetoric and financial markets reduced the amount of stimulus priced into the short-end curves. The RBA is likely to stay on hold in the foreseeable future assessing the impact of three interest rate cuts delivered over the 2019. On the data front, building approvals were strong in December increasing 2.7% yoy (-1.4% exp., -2.8% prev.) while retail sales disappointed with -0.5% decline vs. -0.2% expectations.
New Zealand: The unemployment rate in 2019 Q4 was lower at 4% from 4.1% in Q3.
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