– Services PMIs today
– And US non-farm payrolls
Good morning. After a period of nervousness, brought on partly by the problems in Euroland, the world swung firmly yesterday back towards an appetite for risk. Equity markets went up. Commodity-oriented currencies moved ahead. Even FIFA, that august body of unimpeachably altruistic men of honour, joined in with the mood of risk-taking. It awarded the next two world cup tournaments to Russia, where football provides a platform for ultra-nationalists to abuse foreign players, and Qatar, where a long tradition of football dates back to the 1970s.
Money will not have been an issue with the gentlemen of the FIFA executive committee but it was fundamental to the discussions of the European Central Bank’s governing council yesterday. In the end, the ECB came out with the decision that had been considered most likely by Frankfurt-watchers. It left its key policy interest rates unchanged for a 20th month and said as much in its typically terse statement following the meeting. It was not until later that the market found out what it really wanted to know: Would the ECB continue to provide commercial banks with unlimited liquidity for a longer period and would it step up its purchase of Greek, Irish, Portuguese and other struggling governments’ bonds?
The answers were yes and no. Neither was a surprise. The ECB had little option but to continue supporting marginal banks such as Spain’s small regional “cajas”, most of which have an uncomfortably high exposure to property loans. As for cranking up the bond purchases, however, the ECB’s hands are tied by fierce opposition, in Germany and elsewhere, from politicians who do not want to see the euro’s credibility damaged any further. Germany’s economics minister Rainer Bruderle put it simply: “The permanent printing of money is not a solution.”
Given that the total package from the ECB failed to exceed – or even to meet – their most optimistic expectations, investors were surprisingly benign to the euro after the event. They allowed it to rise by half a cent against the US dollar and the pound and to remain steady against the yen. There was a sensation that by extending its emergency lending facility for troubled banks the ECB had postponed the day of reckoning. Any such postponement must be better than the lack of one. Hence the improvement in risk-appetite and the progress of the commodity dollars. The one fly in that theoretical ointment is the way the Swiss franc strengthened against the euro. It did not go far, scarcely half a cent, but if everyone was suddenly so relaxed about the euro, why were they selling it against the franc?
Other than the ECB press conference yesterday’s economic news was not particularly high-profile. Euroland growth in the third quarter of the year went through its first revision unmodified at 0.4%. Euroland producer prices were on target with 0.4% monthly and 4.4% annual increases. US pending home sales jumped by a punchy 10.4% but investors were uncertain how to react; they didn’t know whether to buy the dollar because the figure was promising for the US economy or sell it because it was a positive for the global economy. So they did neither.
There are two major aspects to today’s economic news; the performance of the services sector of the world’s economy and the employment situation in North America. The second round of purchasing managers’ indices (PMIs) looks at the services sector. Australia opened the bidding when AiG’s performance of services index declined from 50.7 into the contraction zone at 46.2. The HSBC version of China’s services PMI fell by three points to 53.1. There is little consensus among analysts how the European data will pan out, other than a prediction that they will not be much different from a month ago. They have put the United States down for a small improvement.
The monthly change in US non-farm payrolls is still the world’s most trendy economic statistic. In October 151k new jobs were created. The prediction for today’s November figure is of another improvement in the jobs market with 145k more people in employment. In Canada they are looking for an increase of at least 15k jobs after a modest 3k increase the previous month.
Other scheduled announcement today include Swiss inflation (just announced as 0.2%), Euroland retail sales and US factory orders but it is the PMIs and the employment numbers that will set the tone. If sterling can pull the same stunt with the UK services PMI that it achieved on Wednesday with the 16-year high in the manufacturing PMI it could be in for a good day. So to those of you for whom it has not already started because of the snow, have a good weekend.