Special FX Report - Upcoming US data and event risk |
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| Written by Michael J. Malpede | |||||||||
| Tuesday, 05 January 2010 19:22 GMT | |||||||||
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ADP employment The ADP employment report for December will be released on Wednesday January 6th at 8:15 AM ET. The ADP report attempts to track US nonfarm payrolls. The report will be looked to for clues to Friday's release of US December nonfarm payrolls report. The December ADP is expected at -73k compared to -169k last month. Until last month the ADP report has been a relatively good forecasting tool for US nonfarm payrolls. Last month the ADP report missed the actual nonfarm payrolls release by 151k. There is increased speculation that the December nonfarm payrolls will turn positive for the first time in 23 months with analysts at J.P. Morgan calling for a rise of 40k. If JP Morgan analysts are correct the ADP report will likely undershoot the December nonfarm report by as much as 90k. This months ADP report will be less useful for forecasting the December nonfarm payrolls. ISM non - manufacturing index December ISM non-manufacturing index will be released on Wednesday, January 6th at 10:00 AM ET. The December non manufacturing ISM is expected at 50.5 compared to 48.7 last month. The ISM non-manufacturing index unexpectedly declined to 48.7 in November from 50.6 in October. The rebound in the December ISM non-manufacturing index is expected to reflect an increase in supplier deliveries, new orders, production and improvement in the employment component. A reading above 50 would indicate that the non-manufacturing sector of the US economy is expanding. The ISM non-manufacturing index is usually not a major market mover because the service industry tends to be less cyclical than manufacturing. The ISM manufacturing index for December was released Monday and rose to 55.9. FOMC minutes The FOMC minutes for the December policy meeting will be released on Wednesday January 6th at 2:15 PM ET. The minutes for the November policy meeting confirmed that the Fed will maintain low yields for an extended period, that the US economy is strengthening, inflation will remain subdued and unemployment to remain elevated. At the end of 2009 investors began to speculate that improvement in US employment, retail sales data and the continuing rally in equity markets would encourage the FOMC to hike interest rates earlier than expected. Some analysts anticipate that the Fed may hike rates starting in mid-2010. Fed rate hike speculation contributed to the USD rally in December. Tuesday, Fed Governor Elizabeth Duke said that she expects a moderate economic recovery and that economic conditions likely warrant exceptional levels of interest rates for extended period. Duke's statement suggests that the FOMC minutes for December will remain dovish and that markets may have been ahead of themselves pricing the potential for more aggressive Fed rate moves. The USD may trade lower if the FOMC minutes confirm the need to keep interest rates at exceptionally low levels for an extended period. BOE policy meeting The Bank of England (BOE) will conclude a two-day policy meeting on Thursday January 7th. At the December policy meeting the BOE voted unanimously to maintain current yields at 0.5% and left its level of asset purchases unchanged at £200bln. There is a great deal of debate over whether the BOE is moving closer to an end quantitative ease or will need to consider another expansion of quantitative ease as the UK government begins to take action to reduce the budget deficit. Recent UK economic data shows improvement in manufacturing PMI house prices and mortgage approvals with the unemployment rate stabilizing. Despite signs that the UK recession may be ending, the improving UK economic data will not be enough to encourage the BOE to change policy at this time. The BOE is expected to take no action at Thursday's policy meeting. At the November policy meeting BOE officials indicated that they will be focusing on inflation and will wait until after the release of the February inflation report to determine if any policy change is warranted. UK press today reports that the BOE may consider expanding its asset purchases because of concern UK deficit reduction will slow the recovery. Tighter fiscal policy may emerge as an additional headwind to the UK economic recovery. The BOE is expected to wait to see inflation figures in February before deciding whether a pause in its asset purchase plan is justified. Inflationary pressures in the UK have been accelerating and inflation is likely to rise above the BOE's 2% inflation target in January. The UK government expects inflation to rise to near 3% in 2010 before falling in early 2011. Accelerating UK inflation may restrict the BOE from electing to expand quantitative ease at the February policy meeting. UK November inflation rose at its fastest pace in six months reported at 1.9%. GBP may experience modest selling pressure if the BOE elects to continue its asset purchase plan.
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