The Global Markets Weekly – 1/10/14

Posted January 13, 2014 by rvillareal

Bump in the Road?

The sudden December slowdown in U.S. payroll employment growth, to +74,000 from +241,000 in November, was widely regarded as reflecting either weather problems or relatively severe statistical noise.  Many observers seemed, like DE, to conclude that the FOMC would still tighten its tapering process another notch at the late-January meeting—though with that view a bit less confident than before.[private]

Still, with the history of multiple false dawns in the current recovery, and with inflation uncomfortably low for many FOMC players, and with the most dovish probably arguing that there would be little or no harm in delaying the next step just to be safe, tapering might well be put on hold—particularly if other December numbers surprise to the weak side.

Markets seemed to react as if the edge had actually been taken off the Fed’s pullback, with Treasuries rising, the dollar falling, and stocks holding about steady—seeming to balance a marginal potential weakening in the economic outlook against a marginal  tapering delay.

• U.S.: Several releases will be looked to for assurance that the demand side of the economy continued to move forward in December, and was not a factor in the sudden employment-growth slowdown.   Retail sales (Tue) will give a sense of the solidity of the consumer trend, while housing starts (Fri) and industrial production (Fr) will be read as reflections of demand-side growth.
• Eurozone:  Given the somewhat better messages in the latest batches of factory sector data, there should be even more emphasis on Eurozone Industrial Output numbers (Tue), where a clear rise is now very much on the cards.
• UK:  Amidst mixed signs regarding the real economy, the BoE may point to the softer inflation backdrop that has emerged of late.  However, rising energy bills suggest some fresh rise may occur in the December CPI numbers (Tue).
• Japan: The holiday-shortened week brings mainly secondary indicators, though there will be special interest in December bank lending results (Tue), November tertiary industry activity (Thu), and November machinery orders (Thu).
• Emerging Markets/Regions:  In China, The key item in a relatively light data week is December Aggregate Financing, (Wed) expected to drop again on a Y/Y basis, while new loans, should increase moderately.   In India,   Both the December WPI (Mon), which the RBI tracks, and CPI (Mon) should decelerate on an annual basis.  In Korea, neither the unemployment rate (Wed) nor discount/department store sales (Wed) is likely to alter the fundamental outlook or to move markets unless an extreme outcome takes place.  In Mexico, December Antad same-store sales (Tue).  carry particular importance this month, given the better-than-expected November figure.  In Brazil, the overall inflation/growth balance has shifted slightly, but sufficiently, to facilitate the central bank’s move to tighten again (Wed).  This time, however, a more moderate increase of the Selic-overnight rate appears likely.

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