American Job Creation Beats Expectations

Daily Analysis - 04/02/2016

ADP Delivers Positive Employment Indications Ahead of Friday’s Payroll Number

The latest nonfarm employment report from ADP displayed higher than anticipated hiring by firms, preceding the long awaited nonfarm payrolls due from the Government tomorrow. The services sector was the largest contributor to the total with businesses, trade, transport and construction reporting gains while the manufacturing sector flat-lined.

Euro Area Retail Climbs

Retail sales in the Euro economic bloc recorded moderate improvement over the month of December according to the report from the European Statistics Office, logging gains of 0.30%, outpacing November’s -0.30% contraction by a wide margin. This figure marked the first increase in 4-months after food products alongside drinks and tobacco experienced an uptick of 0.60% whereas non-food products rose by 0.20%. Energy remained a drag with fuel sales for automobiles declining by -0.10%. Annualized retail sales rose by 1.40% in December, pulling back slightly from 1.60% in November. According to Euro Stat, seasonal factors such as the holidays helped grow consumption while the bigger picture gains reflect the gradual improvement in the labor market. The total average of retail sales for the year of 2015 reported a growth of 2.40%. The Euro gained further ground versus the US dollar, extending the recent rally briefly back above 1.1100 before pulling back slightly.

UK Services Continue Ascension

The main driver of growth in the United Kingdom continued to show strong signs in January with Markit reporting an increase in the Services Purchase Manager’s Index to 55.6 during the month, slightly higher than December’s 55.5 after defying expectations of a 55.3 print. The job market also continued its own advance with new business hiring rising over the last 6 months. Nevertheless, the outlook is not without concerns according to Market Chief Economist Chris Williamson. Inflation still remains at worrisomely low levels preventing any movement on monetary policy while growing external economic headwinds and the approaching referendum may further dent sentiment. The Bank of England is set to report its latest monetary policy decision later in the decision with rates forecast to remain on hold. The Pound continued to appreciate versus the dollar on a sustained selloff in the US currency, climbing as high as 1.4649.

US Companies Add More Jobs

Job growth remains resilient in the United States despite a vicious month to start off the year after above average financial market volatility and enduring turbulence in the global economy. The nonfarm employment release distributed by Automatic Data Processing (ADP) reported 205,000 workers hired during the month of January. While marking a notable retreat from December’s higher revised result of 267,000, it still managed to beat expectations of 195,000 jobs created. Service providers hired the most in January, accounting for 192,000 positions of the total gained, with gains in the business sector at 44,000 and construction adding 21,000. The upbeat assessment for the labor economy reflects optimism in the outlook, a pick-up in demand as well as wage gains. Despite the positivity, the US dollar continued to show weakness, dropping back below 118.00 versus the Yen and erasing all the pair’s gains following the Bank of Japan’s negative rate decision.

Turkish Inflation Accelerates

Headline consumer prices climbed by 9.58% year over year through January according to the Turkish Statistical Institute. The value surpassed forecasts of 9.50%, notably outpacing levels recorded during the previous month of 8.81%. This was the highest value reported since May 2014 as food prices, which account for almost 25.00% of the measure, rose by 11.69% during 2015. Government taxation was also a factor behind the uptick, led by an 11.70% rise in alcohol and tobacco prices. On a monthly basis, inflation rose by 1.82% in January, exceeding previous month’s values of 0.21% and estimates of 1.70%. Inflation levels currently remain well above the 5.00% level targeted by the Central Bank of the Republic of Turkey. Governor Erdem Basci has stated repeatedly that reaching the target will not be feasible until 2018. The Turkish lira gained modestly versus the US dollar, with the exchange rate falling to 2.9526 after the announcement.