– US payrolls data a disappointment
– China’s trade surplus narrows sharply
Good morning. The shadow chancellor, Alan Johnson, has told a TV interviewer that he wants to raise the employer’s national insurance contribution to 21%. The revelation is scary on two levels. First, the current rate is only 12.8%. Second, the shadow chancellor thought it was 20% and was happy to raise it anyway. But anyone tempted to titter at such blatant money-grabbing should ponder upon what the real chancellor has done to taxes on petrol. In common with most of the electorate, Mr Osborne probably did not know that the tax on petrol was 171% at the end of last year. But that did not stop him raising it to 191% on 1 January. The 20 percentage-point rise makes Mr Johnson’s inadvertent 8.2 percentage-point NI increase look almost charitable.
The government’s extra £8 million per day petrol tax revenue was probably not what inclined investors to be charitable to sterling at the end of last week but who cares; they were charitable anyway. Compared with Friday morning the pound looks better against everything. The improvement has little or nothing to do with the merits of sterling; it is the result of investors’ misgivings about other currencies, particularly the euro and the dollar.
The nervousness surrounding the euro was nothing new. Investors fear that Portugal is moving ever closer to needing a bailout from the European Financial Stability Fund (EFSF). On Friday the Swiss National Bank removed Portuguese government debt from the list of securities it will accept as collateral. After last week’s successful auction of €500 million six-month bills Portugal will have to repeat the exercise this week at the same time as Spain and Italy are trying to raise money. Even if China steps in to soak up the issue the market’s concern is similar to that relating to terrorism: Portugal needs to be lucky at every government debt auction, being unlucky just once will send it down.
Such was the lack of enthusiasm for the euro that it even fell against the US dollar. That was some achievement, given the dollar’s decline against everything else. Investors had been optimistic that the non-farm payrolls figure would show 175,000 jobs being created during December. A large part of that optimism came from an unexpectedly strong reading by payrolls administration firm ADP on Wednesday. ADP clocked 297,000 new jobs in the private sector during December and investors hoped that expansion would have been mirrored by the public sector. It wasn’t. Not for the first time, the ADP survey proved to have been a red herring. The official figures showed that non-farm payrolls went up by 103,000 in December. The figure fell well short of expectations. There were redeeming factors though. Revisions to the figures for October and November added a further 80k to the total number of people in work. That meant the net 175k increase bandied about on Friday morning was actually fairly accurate, if only by accident. But it was not enough to redeem the dollar. Job creation in 2010 amounted to 1.1 million positions, leaving 7.3 million of those who lost their jobs in 2008/09 still out of work. A fall in the rate of unemployment from 9.8% to 9.4% merely shows how many people have given up looking for a job.
Once again the Canadian dollar demonstrated its close connection with US economic developments. Although it strengthened by nearly a cent on the announcement of 22,000 new Canadian jobs in December it lost all that ground and more when the US payrolls figure came out.
Figures announced earlier today in the Far East included a narrowing of New Zealand’s trade deficit and a narrowing of China’s surplus. The most striking aspect of the Chinese data was the slowdown in the rate of increase of both imports and exports. In the year to November Chinese exports rose by 34.9%. In December the annual increase was “only” 17.9%. The equivalent figures for imports were 37.7% and 25.6%. The monthly surplus narrowed from US$22.9 billion to US$13.1 billion. There can surely be no truth to the cynical accusation that the figures were massaged in order to provide China with a more helpful bargaining position in next week’s currency discussions with President Obama.
The Halifax house price index, which came out as London opened this morning, was appropriately disappointing. It showed prices falling by -1.3% in December and down by -3.4% on the year. Like the Nationwide, The Halifax sought to put a less negative spin on the figures by referring to the quarterly change. “Prices in the final three months of 2010 were 0.9% lower than in the previous quarter. This rate of decline is significantly less than the quarterly falls of 5-6% during the second half of 2008.” The Halifax is also optimistic that “Interest rates are likely to remain very low for some time. This will continue to support a favourable affordability position for those entering the market and limit financial pressure on existing homeowners to sell.” The subject of what might happen when interest rates do eventually rise was studiously avoided. All that remains on today’s agenda is Swiss retail sales, euro zone investor confidence and Canadian building permits. The European Central Bank’s Jean-Claude Trichet and Carlos Costa will be speaking today, as will Dennis Lockhart from the Federal Reserve and Agathe Cote from the Bank of Canada.
Another statistic-free day will leave sterling to stew over the Halifax house price index. It cost the pound an almost immediate half-cent against the euro and the dollar. There might be further erosion as the day progresses.