ON DECK FOR FRIDAY, JANUARY 8
KEY POINTS:
- Dollar, Treasuries guarded, stocks up
- US nonfarm payrolls likely stalled out in December
- Fed’s Clarida to weigh in with updated outlook
- Canadian jobs: downside risk in both December & January reports
There are three main things to watch this morning after largely inconsequential overnight European releases. They are flagged below.
- US equity futures are in the black again with a rise of ¼% to ½% across exchanges. Toronto is mildly higher. European exchanges range from flat in London to up by as much as ¾% in Frankfurt.
- Sovereign bond yields are little changed with mild exceptions including slightly richer Canadian 10s and Italian spread narrowing over bunds.
- The USD is little changed and so is CAD ahead of dual jobs reports.
- Oil is up again by about 1½%.
Overnight European releases were largely inconsequential to markets as they speak to lagging November readings in the face of forward-looking risks. Still, German data was strong, French not so much. German exports were up 2.2% m/m (1% consensus) for the seventh consecutive solid gain. German industrial output was up by 0.9% m/m in line with consensus but with a mild upward revision and this also marks the seventh straight monthly gain.
French consumer spending plummeted by about 19% m/m in November on the nationwide lockdown effect. Industrial production also fell by 0.9% m/m that month.
Here are the three main things on tap. The main focus is on US & Canadian jobs reports as restrictions tighten (chart 1).
1. Nonfarm payrolls (8:30amET)
Consensus 50k, Scotia 75k, trimmed range is about -100k to +150k, whisper number is 45k. The 90% confidence interval for nonfarm estimates is +/- 110k so noise always figures prominently. That job market momentum stalled out is clear. Chart 2 shows that jobs became harder to get according to the jobs plentiful gauge in consumer confidence. Chart 3 shows that initial jobless claims backed up between November and December reference periods (but have since fallen back). Chart 4 shows that ISM-services indicated weaker hiring activity. Chart 5 illustrates that job openings have stalled out. Chart 6 is a reminder that it would be statistically improbable for nonfarm to be positive after the magnitude of the ADP decline of 123k last month; the left side of the chart shows the low frequency of observations attached to a spread like -123k for ADP and the nonfarm consensus of +50k since ADP revised its methodology in October 2010. There is a single digit percentage chance that nonfarm comes in as high or higher than consensus thinks; the problem is that all of the data points behind that low probability are concentrated in this year as ADP has generally undershot nonfarm payrolls.
2. Fed’s Clarida (11amET)
The Fed’s #2 speaks on the US economy and monetary policy in a conversation at the Council on Foreign Relations. Key may be whether he reinforces recent taper talk from some FOMC speakers (e.g. Kaplan, Bostic) but I suspect he’ll lean more toward Bullard’s answer that indicated it’s too early to address this. A lot has happened since Powell spoke in mid-December and so his remarks on the outlook and risks may be meaningful. Several positive developments have included passing the Brexit deal, getting the US stimulus deal passed, the ‘blue wave’ and market moves like a further rise in inflation expectations. Confidence in vaccines, however, has been dented until we get the results of trials against the London and South African mutations into a February/March timeline.
3. Canadian jobs (8:30amET)
Consensus -38k, Scotia -60k, highly scattered range from around -125k to +31k. Notwithstanding a 95% confidence interval of +/-58k (90% at +/- 46k), I lean pretty strongly toward a negative. Key is the timing of restrictions that hit just after the prior month’s reference week that includes the 15th of each month. January’s job report is also likely to face downside risk on further restrictions and because Ontario’s extended school closures will go right through the Labour Force Reference week and probably have a particularly negative impact upon working moms as evidenced the first time around.
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