Market Brief: non-farm Friday

02 Feb 2018

Lewis Thorn

Dealing team

Yesterday’s UK Manufacturing PMI fell back to 55.3 in January from a revised 56.2. That was a weaker reading than the 56.5 market consensus and Investec’s 57.6 forecast.

Today's data releases
  Key levels
09:30 UK construction PMI   Support Resistance
13:30 US non-farm payrolls GBP/USD 1.4027 1.4345
15:00 Univ. of Michigan sentiment GBP/EUR 1.1369 1.1459

Market overview

Yesterday’s UK Manufacturing PMI fell back to 55.3 in January from a revised 56.2. That was a weaker reading than the 56.5 market consensus and Investec’s 57.6 forecast. The January reading was also the weakest since June 2017. Despite, the January fall, a PMI reading in the mid-50s still points to a solid pace of expansion in the UK’s second largest sector. However there was further evidence of the cost pressures facing manufacturers with purchase prices having risen at the fastest pace in 11 months and to ‘one of the greatest extents in the survey’s history’; one question is whether these apply a greater squeeze to manufacturing momentum over the months ahead and imply further factory gate prices pressure down the line.
 
Last night Trade Secretary Liam Fox stated the UK must not enter a new customs union with the EU after it leaves the bloc drawing a new red line for the PM and her party on Brexit. Europhile and chief Brexit campaigner Liam Fox must not sign up to the external tariff which binds EU member countries to the same rates. The comments follow a report which was published in the FT indicating that the government are considering keeping the UK in a new customs union and the external tariff agreement.

The day ahead

Non-Farm Payrolls for January is due for release 1.30pm UK time today alongside the other bits of the labour situation report, namely the unemployment rate and latest pay growth figures. US non-farm payroll readings have been subject to significant noise over recent months as the impact of the 2017 hurricane season has fed through and as data have rebounded afterwards. The December payroll reading was likely a ‘cleaner’ print (i.e. less hurricane distortions) and showed non-farm payrolls rising by 148k over the month. We are pencilling in +165k non-farm payroll reading this time around whilst the market consensus is +180k. We expect the unemployment rate to hold steady at 4.1%, in line with market expectations. On pay growth, hourly earnings growth figures were recorded at 2.5% y/y in December, continuing to lack upward momentum having remained stuck in a 2.4%-2.6% range since March 2017. We suspect a further range-bound reading this time would not delay a March hike (consensus is 2.6%). But certainly if pay growth continues to lack upward momentum over the months ahead, this could well force the new Fed Chair Jerome Powell to think again about whether three hikes, alongside QE roll-off plans, are really warranted this year.

Thought of the day

The pop fans among you will be happy to know that the Columbian singer, Shakira, celebrates her 41st birthday today. The multi-award winning artist is also married to Barcelona FC’s star defender Gerard Pique – a multi-award winning star too in his own right! It wasn’t long ago that the city of Barcelona made the headlines in the papers on matters not relating to football after the Catalan region declared independence from Spain after a referendum. Here in the UK, we know a thing or two about a referendum (and an election!) as the voting public have been to the polls 4 times in less than 4 years! However growing discontent within the Tory party could potentially trigger another leadership race which could again result in an early election in the UK! As the PM’s power struggles continue this week, call your Investec dealer today to see what the likelihood is for us to go back to the polls for a 5th time in 4 years.

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