Euro Area Employment Recovery Endures

Daily Analysis - 02/12/2016

Plans to Extend Accommodative Monetary Measures Encourages Euro Area Confidence

In another positive sign for the rebound in Euro Area economic activity, joblessness showed continued improvement during the month of October as asset purchases and record low interest rates helped boost job creation. With the European Central Bank considering an extension of its ongoing purchase program, the tailwinds for the economy may remain for the foreseeable future.

Euro Area Unemployment Improves Further

Although the measure still remains stunningly high relative to other advanced global economies, the Euro Area has continued to make progress on fighting unemployment despite the complete absence of fiscal stimulus measures. The unemployment rate fell to 9.80% during the month of October, marking the best reading since July of 2009. Besides the great headline figure, the prior month’s figure was also revised lower as the extremely loose monetary policy environment helps stimulate private sector investment. According to recent comments from officials and analysts, the European Central Bank is forecast to announce an extension of its existing asset purchase program for an additional 6-months even though there have been difficulties in expanding the available supply. After closing flat on Thursday, EURGBP is back under pressure, trending around 0.8450.

Trump Rally Spurs Additional Manufacturing Gains

In a sign of greater business confidence prevailing across the United States, manufacturing activity picked up during the month of November, with the official purchasing managers’ index climbing to 54.1 after beating expectations and rising above the prior figure of 53.9. While there are significant concerns that the most recent US dollar rally may hurt the sector in light of reduced export competitiveness, data from the third quarter showed a surprising pickup in the trade environment which may prove positive for the sector at large. Additionally, better oil and gas prices are helping manufacturers rebound after a slump earlier in the year. The Institute of Supply Management figures also added to the upbeat news, rising to 53.2 from 51.9 back in October. Nevertheless, positive data was not enough to stem losses in stocks, with Nasdaq futures remaining under pressure.

Swiss GDP Growth Halts

After five straight quarters of growth, the latest Swiss gross domestic product figures underscored an economy that is struggling to grow in a challenging trade environment. Data reported earlier in the session showed that quarterly growth slowed to 0.00% during the third quarter, with the annualized pace of growth slowing to 1.30% from the 2.00% recorded a quarter earlier. Besides trade faltering and import growth of 0.20% handedly outpacing the export contraction of -0.20%, sliding government spending was a key driver behind the rapid deceleration in economic expansion. Although investment and consumption rose during the period, helping to balance out the shrinkage in other figures, the outlook remains precarious as Switzerland struggles to exit from deflation. In the meantime, the Franc is reversing modestly after steep gains versus the US dollar a session earlier.

Natural Gas Hits Multi-Year High

After hitting multi-decade lows earlier in the year, natural gas prices are back on the climb as seasonal drawdowns due to colder weather help alleviate the glut in supply. According to the Energy Information Administration, natural gas in storage fell by 50 billion cubic feet last week, helping to propel prices to their highest point since December of 2014. Forecasts of a cold spell have helped spur higher demand after a fall season that saw a period of rapid increasing stockpiles. However, if colder temperatures fail to materialize over the coming days and weeks, the recent momentum higher in prices may be poised for a rapid reverse, especially after the spectacular rally. Since hitting highs on Thursday, prices are back on the retreat, with natural gas futures trending just above $3.500 per MMBtu.