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Pre Market Briefing, including 'Euro-zone retail sales declined unexpectedly in December'
UK Market Snapshot
UK markets finished higher on Friday, on better-than-expected US payrolls data and on reports of a rise in British and European services sector activities. Admiral Group jumped 7.9%, after the company extended its reinsurance arrangements for cars until 2014. Banks, Lloyds Banking Group, Barclays and Royal Bank of Scotland surged between 1.0% and 5.1%, driven by the long term refinancing operation. Tullow Oil gained 1.5%, after the company signed two production-sharing agreements with the Government of Uganda, the precursor to finalizing a proposed farmdown with Total and Cnooc. Hays climbed 7.3%, amid news that Adecco is considering a cash bid for the company at 150p a share. Misys rose 1.2%, after the company confirmed that it is in talks with Temenos Group for a tie-up via an all-share merger. The FTSE 100 advanced 1.8% to close at 5,901.1, while the FTSE 250 rose 1.3% to settle at 11,235.2.
US Market Snapshot
US markets closed higher on Friday, led by gains in banking and industrial sector stocks, following the unexpected drop in the unemployment rate in January. Banks, Bank of America, Morgan Stanley and JPMorgan Chase gained between 1.9% and 5.2%. Industrial sector stocks, Caterpillar, Alcoa and FedEx advanced between 1.9% and 3.3%. Genworth Financial surged 14.0%, after the company reported fourth-quarter results that were better than market expectations. Gilead Sciences jumped 10.9%, after one of its experimental hepatitis C drug produced positive clinical trial results. Tyson Foods added 4.1%, after the company reported first-quarter earnings and revenue that beat analysts’ estimates. The DJIA rose 1.2% to settle at 12,862.2, while the NASDAQ advanced 1.6% to close at 2,905.7. The S&P 500 gained 1.5% to settle at 1,344.9.
Europe Market Snapshot
Other European markets finished higher on Friday, as upbeat US jobs data and a boost in services industries in the UK and Europe raised optimism that the global economy is recovering. Temenos Group surged 15.7%, after Misys announced that it has held talks with the company about an all-share merger. NKT Holding and Subsea 7 jumped 9.3% and 2.7%, respectively, after the companies agreed to sell their pipeline unit to National Oilwell Varco. Volvo climbed 4.3%, after the company reported better-than-forecast fourth-quarter earnings. Daimler gained 3.1%, after the company announced that the global sales of its Mercedes-Benz car brand rose 5.8% in January. The FTSEurofirst 300 index gained 1.6% to close at 1,076.7. Among other European markets, the German DAX Xetra 30 rose 1.7% to close at 6,766.7, while the French CAC-40 advanced 1.5% to settle at 3,427.9.
Asia Market Snapshot
Markets in Asia are trading higher this morning, following upbeat jobs data in the US. In Japan, Panasonic is trading 7.2% higher, after the company stated that the profit for the next year beginning 1 April might recover on business restructuring, even as the company predicted a record loss for the year ending March 2012. Mitsubishi is trading 1.9% higher, after the company announced plans to double its copper output in 2012. In Hong Kong, China Construction Bank, Industrial & Commercial Bank of China and Bank of China are trading between 0.6% and 0.8% higher, after a state-owned investor announced that it would allow three banks to cut their dividend payout ratio. In South Korea, LG Display is trading 4.5% higher, amid expectations of a turnaround in 2012. The Nikkei 225 index is trading 1.1% higher at 8,926.5. Hang Seng index is trading 1.5% up at 20,862.2, while the Kospi index is trading 0.3% higher at 1,978.2.
Commodity, Currency and Fixed Income Snapshots
Crude Oil
At 0432GMT today, Brent Crude Oil one month futures contract fell 0.03% or $0.04, to trade at $114.54 per barrel. On Friday, the contract rose 2.24% or $2.51, to settle at $114.58 per barrel, amid hopes that a US economic recovery would boost demand for crude oil.
Gold
At 0432GMT today, gold futures contract lost 0.24% or $4.20, to trade at $1,736.10 per ounce, as the dollar strengthened against other major currencies, reducing the appeal of the precious metal. On Friday, the contract fell 1.08% or $19.00, to close at $1,740.30 per ounce, after the unemployment rate in the US declined to 8.3% in January, compared to a level of 8.5% recorded in December. Market had expected the unemployment rate to remain unchanged at 8.5% in January.
Currency
At 0432GMT today, the EUR weakened against the USD, losing 0.39%, to trade at $1.3092, as retail sales in the Euro-zone fell 0.4% in December, following an upwardly revised 0.4% drop recorded in November. Market had expected retail sales in the Euro-zone to rise 0.3% MoM in December. On Friday, the EUR gained a marginal 0.05% versus the USD, to close at $1.3143, after the composite Purchasing Managers’ Index (PMI) in the Euro-zone rose to 50.4 in January from 48.3 posted in December and the service sector PMI rose to 50.4 in January from 48.8 posted in December.
At 0432GMT today, the GBP weakened slightly against the USD, losing 0.20%, to trade at $1.5781. On Friday, the GBP rose marginally against the USD, gaining 0.06%, to close at $1.5812, as the service sector PMI in the UK rose unexpectedly to 56.0 in January, compared to 54.0 posted in December. Market had expected the index to drop to a reading of 53.3 in January.
Fixed Income
In the US, long term treasury prices fell on Friday, pushing the yields on 30-year bonds higher, as investors’ risk appetite was boosted by better-than-expected US jobs data and upbeat service sector data in the UK and Europe. On Friday, yields on 30-year bond yields increased 12 basis points to 3.13%, while yields on 10-year notes increased 11 basis points to 1.97%. However, at the short end, yields on 2-year notes remained flat at 0.23%.
Key Economic News
UK services PMI rose unexpectedly in January
The service sector Purchasing Managers’ Index (PMI) in the UK rose unexpectedly to a reading of 56.0 in January, marking its highest level in ten months and compared to a reading of 54.0 posted in December. Market had expected the index to drop to a reading of 53.3 in January.
UK gross reserves rose in January
The UK government's gross reserves rose to $96.38 billion in January from $93.85 billion reported in December. Additionally, net reserves increased by $2.47 billion to $46.09 billion in January, compared to $43.62 billion recorded in December.
German private sector expanded less-than-estimated in January
The composite PMI in Germany was revised lower to a reading of 53.9 in January, compared to a flash estimate of 54.0. The service sector PMI in Germany stood at a reading of 53.7 in January, compared to the flash estimate of 54.5.
French services PMI rose more-than-estimated in January
The final service sector PMI in France rose to a reading of 52.3 in January, marking the highest level in five months, and compared to the flash estimate of 51.7.
Euro-zone composite PMI rose in January
The composite PMI in the Euro-zone rose to a reading of 50.4 in January, unchanged from the earlier flash estimate and compared to a reading of 48.3 posted in December. Additionally, the service sector PMI stood at a reading of 50.4 in January, revised lower from the earlier flash estimate of 50.5, but an increase from a reading of 48.8 posted in December.
Euro-zone retail sales declined unexpectedly in December
On a month-on-month basis, retail sales in the Euro-zone fell 0.4% in December, following a upwardly revised 0.4% drop recorded in November. Market had expected retail sales in the Euro-zone to rise 0.3% MoM in December, compared to a decline of 0.8% originally reported for the previous month. On an annual basis, retail sales dropped 1.6% in December, following a revised 1.5% drop recorded in November. Market had expected a decline of 1.3% YoY in December.
US unemployment rate unexpectedly declined in January
The unemployment rate in the US declined to 8.3% in January, marking the lowest level since February of 2009 and compared to a rate of 8.5% recorded in December. Market had expected the unemployment rate to remain unchanged at 8.5% in January. The US economy added 243,000 new jobs in January, following a revised increase of 203,000 jobs reported in December. Market had predicted an addition of 140,000 jobs in January.
US factory orders rose less-than-expected in December
On a month-on-month basis, factory orders in the US rose 1.1% in December, following an upwardly revised 2.2% increase recorded in November. Market had expected factory orders to increase 1.5% MoM in December, compared to a 1.8% growth originally reported in the previous month.
ISM non-manufacturing index rose more-than-expected in January
The Institute for Supply Management (ISM) reported that its non-manufacturing index in the US rose to a reading of 56.8 in January, compared to a revised reading of 53.0 posted in December. Market had expected the index to rise to a reading of 53.3 in January from the reading of 52.6 originally reported for the previous month.
Canadian unemployment rate climbed in January
The unemployment rate in Canada edged up to 7.6% in January, compared to a rate of 7.5% recorded in the previous month.
