Week in Review-Feb 4th

A messy NFP report has many scratching their heads. When Canada can create twice the number of jobs than its much bigger cousin we could be in big trouble. A Trichet ‘balanced inflation’ statement coupled with geopolitical risk premium being applied has taken the wind out of the EUR bulls sails this week. Below, we have some of the highlights of the week.


  • Manufacturing PMI releases across Europe surprised to the upside with Ireland (+5.6pts) and Italy (+4.2) posting sharp increases, driven by strong forward looking orders components. Elsewhere in the Euro periphery, Spanish new orders also improved but Greece remained the weak spot with January manufacturing PMI still deep in contraction territory. The Euro-zone final manufacturing PMI printed slightly better than flash estimate at 57.3 with the German index holding at an elevated level. The data supports ECB tightening prospects, but the financing stress, especially through March and April, will undermine ECB pricing again in the weeks ahead.

  • German joblessness fell further than expected last month (-13k) sending the German unemployment rate down to its lowest level since March 1992 (+7.4%).

  • In Switzerland, retail sales were particularly weak at -0.4% in December from revised +1.8% in November. Manufacturing PMI fell slightly in January, but orders and employment components were more resilient, posting a smaller rise for the month. Overall, leading indicators point to fairly robust growth in 1st Q.

  • Sterling all week got its bid from surprising headline prints. In the UK, January manufacturing PMI hit a record high at 62. New orders rose to 65.6 from 59.3 and employment rose to 58.8, from 57.8. Both indicators are at their highest levels in history and suggest that the manufacturing sector’s share of the private sector is creating jobs. Inflationary pressures are also strengthening as input prices surged to 84.9 from 80.3 and output prices to 62.8 from 58.6. The market anticipates that there is an increasing risk that MPC rhetoric continues to shift in a hawkish direction, especially after the UK services PMI rebounding sharply last month to 54.5 vs. 51.3. UK data this week suggests that the weaker 4th Q GDP growth had been largely weather related.

  • Spain is committed to achieving a fiscal deficit of +3% in 2013 and their deficit target in 2010 is in no doubt.

  • Ireland was downgraded one notch to A- by S&P’s, and a further downgrade is possible as the government tries to contain bank-rescue costs.

  • Germany is making its agreement to an expanded rescue effort for Europe’s most-indebted countries conditional on tighter finance controls.

  • Trichet did not disappoint, as expected kept base rates on hold at +1%. Most of the EUR’s early week gains had come on the back of investors believing that the recent hawkish comments from Trichet warrant a Euro-zone rate hike sooner rather than later. His communiqué was less hawkish even after a firm January CPI. ‘Inflation risks are balanced and could shift to the upside which would require careful monitoring’.


  • The first of US job indicators got off on the correct foot, ADP +187k. The second, weekly jobless claims remain volatile, retreating -42k to +415k and reversing nearly 80% of the prior week’s gain.

  • The composite manufacturing and non-manufacturing ISM picked up in January, adding +2.3pts to 59.6.

  • The US service sector continues to accelerate, unexpectedly picking up last month (59.4 vs. 57.1). January marks the fifth consecutive month of accelerating activity and the highest index in six-years. It’s worth noting that the services sector accounts for two-thirds of the economy, a third of exports and 80% of all private-sector jobs. Most of the subcomponents posted gains, including new-orders, backlog of orders, current ‘production’ and employment. US momentum continues.

  • Canadian employment numbers blew analysts estimates out of the water, beating them by four times (+69.2k vs. +18.2k). The unemployment rate jumped two ticks to +7.8%. Just less than 2/3rd of the report was supported by the Public sector. Is that sustainable? The gain was split between full-time (+31.1k) and part-time jobs (+38.0k). Less of the headline job rise will flow through to an expansion of hours worked given the 55% weighting on part-time jobs.

  • The market witnessed a messy NFP release, with a disappointing headline print (+36k vs. +136k) and a market appealing unemployment rate (+9% vs. +9.5%). It was not a weather report despite headlines on the massive number of people who could not make it in to work due to snowstorms. Making it to work or not is not the relevant issue. It’s whether you were still counted on payrolls for any part of the reference period that matters. There are 43.8% of Americans or 6.2m been out of work for six-months or longer. It solidifies Bernanke’s QE2 agenda.


  • A moderation in China’s PMI (-1 to 52.9) is reducing fears of an aggressive PBOC tightening cycle. Stronger European PMI’s are helping to support the EMEA currencies because of their dependence on core European growth. Historically, PMI on average rises slightly in the month of January, however, analysts believe that the Chinese New Year holiday may have been somewhat distorting.

  • Cyclone Yasi, the perfect storm, hit already flooded Australia, managing to miss many of the major centers. The cyclone will probably further dent March quarter GDP following the floods.

  • AUD has found some support from a surprisingly hawkish Statement of Monetary Policy from the RBA. The Central Bank has tweaked this years forecast, but, crucially, left its medium-term forecasts for inflation and GDP unchanged at rates that point to further policy tightening over the next year. Policy makers are ‘looking through the near-term flood affect, focusing on continued tightening in the labor market and the investment surge. Pricing for the RBA over the next year rose another +5bps to +37bps Geopolitical reduced risk sentiment has pared the AUD advance.

  • BOJ officials are trying to ‘jawbone’ Yen lower. Hidetoshi Hamezaki said they are watching the FX markets ‘carefully’ for they are having a toxic effect upon Japanese corporate profits.

  • Chinese New Year holidays


  • The US Treasury department will sell $72b new bonds next week, matching market consensus ($32b-3’s, $24-10’s, $16b-30’s).

  • UK will be the focus of the week in Europe with its production numbers, Asset Facility and the BOE rate announcement.

  • We will get building permits and housing starts out of Canada, ending the week with its Trade number.

  • Bernanke is due to testify on the economic outlook and monetary and fiscal policy before the House Budget Committee. We will finish the week with the US’s Trade Balance and Preliminary UOM Consumer Sentiment release.

  • Down-under, the market will focus on the Aussie job numbers out mid-week.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell