US Jobs on the up as Sandy smashed the Eastern Seaboard
Week Commencing Monday 5th November 2012
Overriding Market Themes
Construction output in the UK was marginally higher in October, according to the Markit/CIPS Construction Purchasing Managers Index, which rose to 50.9 from 49.5 in September. In contrast, new orders fell for a fifth consecutive month and firms cut jobs at the fastest rate since August 2011, signalling that although things are picking up, the sector is not out of the woods yet. It appears that civil engineering took the biggest leap forward with a second consecutive rise in growth, whilst residential building activity was the weakest performing sub-sector, with output declining for a fifth consecutive month, whilst commercial activity also suffered. Construction is dogging the UK economy, and whilst other sectors such as services and manufacturing are performing at almost record post-crisis levels, construction continues to drag the overall growth figure down. The outlook for this sector is bleak, as with any sector so heavily linked to the credit markets, so expect more of the same as we move into 2013.
In the US, the economy has added more than 171,000 new jobs in October, considerably more than the market expected. This should have been good news for markets, but the unemployment rate rose to 7.9% from 7.8% as more workers resumed the search for jobs. The way the Americans measure unemployment is slightly different that in the UK, as only people who are currently looking for a job can be counted as unemployed. The state of the jobs market is a key battleground for the presidential candidates, both of whom are preparing for the election on Tuesday, with analysts believing that both candidates could take something from these figures. President Obama is likely to point out the fast pace of job creation, while Mitt Romney can say that the unemployment rate is higher now than it was in January 2009 when the president took office. The final poll published on Sunday by Ohio’s Columbus Dispatch gave Mr Obama a 2% lead – 50% to 48% - over his rival, within the margin of error.
Oil prices have fallen after the US Dollar strengthened and the US Government allowed foreign tankers to deliver additional fuel supplies to the country in the wake of super storm Sandy. Brent crude fell to USD 105.73 a barrel, down by almost USD 2.44 whilst US light crude lost USD 2.23 to USD 84.86, the lowest since July. Output from the US eastern seaboard refineries has dropped dramatically as oil companies count the cost of the storm, with much of the infrastructure needing considerable repair. This led the government to waive restrictions on oil imports, enshrined in the Jones Act, allowing foreign ships to deliver oil to US ports. Oil seems set to continue to trade in a volatile market, with many commodity traders looking to the US election to see who the victor might be. Many suspect if the republicans manage to get into office, a conflict in the Middle East becomes ever more likely, leading to even greater pressure on oil prices.
GBP This Week
This week it’s both Services PMI and Manufacturing Productions turn to reveal themselves, with both widely expected to perform strongly over the month. Services should continue to grow, albeit at a slightly slower pace than September, pushing to index to close around 52.0. Tuesday’s Manufacturing Production should come in considerably better than September’s figure, with an increase of 0.3% against -1.1%, indicating that output is back on the rise. Thursday sees the Bank of England rate release, subsequent statement and the statement on the UK’s asset purchasing program. I don’t expect any change to either the rate or the level of Quantitative Easing, although I would imagine some members of the MPC will vote to increase the level by an additional 50 billion pounds.
USD This Week
This week sees ISM Non-Manufacturing PMI released on Monday afternoon, with expansion to continue at a slower pace, with the index expected to come in 54.6 against Septembers 55.1. Moving to Thursday, we have Unemployment Claims and Trade Balance due out in the afternoon. I expect the number of people claiming benefits to rise by around 10,000 and the trade balance to widen slightly. Finally, Preliminary University of Michigan consumer sentiment should come in flat against last month’s release.
EUR This Week
Spanish Unemployment Change leads the European charge, with its release early Monday morning. I expect the numbers to come in around 90.3k against 79.6k last month, indicating that the number of people seeks employment is continuing to rise. Thursday sees the ECB press conference and the rate release, which I expect to see no change with rates remaining at 0.75%.
In Other News
David Cameron is in the Gulf to strengthen Britain’s defence, security and commercial ties in the wake of the Arab Spring. Gulf countries have traditionally been good business battlegrounds for UK business, especially in the Defence sectors, with Saudi continuing to be one of the biggest importers of British defence goods. Meanwhile, the Syrian National Council, the main opposition to the Assad regime, is in Doha stoking international support for their cause. The resistance has been getting bad press recently with suspected human rights abuses against Syrian army personnel, and has caused some international condemnation.
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