Market news 7 February 2020

Unexpected plunge in euro area industrial data, but global business survey data and US labour market remain on track…

• After an unexpected slump in German factory orders, we then saw a series of sharp declines reported in industrial production across the euro area for December: France -2.8% MoM vs -0.3% expected; Germany -3.5% MoM vs -0.2% expected (the largest single month decline in ten years); Spain -1.4% mom vs -1.0% expected.
• The declines were broad-based across industrial sectors. We will await next month’s data to see if there was a statistical distortion caused by the unusually large number of public holidays that fell on working days (in which case we should see a smart rebound in the January data).
• Certainly this was at odds with the positive final January PMI data – the euro area composite PMI was revised up by 0.4pt to 51.3 in January, benefiting from upward revisions to both manufacturing (+0.5pt to 48.0) and services (+0.3pt to 52.5).
• Final UK PMIs also saw positive revisions, with services raised to a 1.5-year high of 53.9.
• The US non-manufacturing ISM rose 0.6pt to 55.5 in January, above expectations (55.1) and the highest level since August. The manufacturing ISM also beat expectations, reading 50.9 in January (forecast 48.5, prior 47.8), the highest since last July.
• The JPMorgan global all-industry PMI rose 0.6pt to 52.2 in January, the highest since March of last year. Admittedly, these positive developments in surveys may be subject to some reversal in February owing to the effects of coronavirus.
• US payrolls gained a healthy 225k in January, well ahead of the expected 165k increase. The unemployment rate actually ticked up from 3.5% to 3.6%, but this was a “good” increase deriving from the increase in the labour force participation rate to a 7-year high of 63.4%.

Markets oscillated on the ebb and flow of perceived coronavirus risk; US political risk remains subdued but is likely to increase going forward

• Somewhat jittery sessions on Monday and Friday bookended a firm “risk-on” move in the middle part of the week, which took global equities back to the all-time highs (led by the US and Europe, with Asia still some way opff the local highs posted in January).
• The US dollar continued to strengthen and EUR/USD decisively broke down through 1.10 for the first time since early October, causing emerging market currencies to come under pressure after a strong recent run.