Weekly Market Update 2019 01 07


US Jobs Growth

US non-farm payroll data released last week showed that 312,000 jobs were created in December, significantly beating expectations. Furthermore, the previous months’ gains were also revised higher. The substantial gain in jobs was coupled with a massive expansion in the labour force of 419,000 leading to an increase in unemployment to 3.9% from 3.7% previously. Workers returning to the labour force en-masse has reversed the long-term trend of a falling employment rate. New employees have been enticed back to work by the higher rates of pay now available, a trend which has continued with an increase in average hourly earnings of 0.4% month-on-month, also beating expectations. The strong data from the US is currently making a mockery of concerns over an upcoming recession, although forward-looking figures suggest that there may be weaker times ahead.

US-China negotiations

Investors are optimistic that the latest round of trade negotiations this week between the US and China will result in something tangible. The recent financial market turmoil and domestic political turbulence may put pressure on the Trump administration to come away with compromise. The current market expectation is that no agreements will be made in the short-term, so any resolutions are likely to lead to a positive market reaction. In anticipation, there has been a positive start to the week with China’s Renminbi rising to a one month high and Asian stock markets rising on Monday.

UK Purchasing Managers’ Indices (PMIs)

The Markit/CIPS Services PMI in December rose to 51.2 from 50.4 in November, pointing to a small increase in activity. However, the survey still indicates a significant slowdown in Q4 on the previous quarter. The data suggests that the final quarter of the year will have seen GDP growth of 0.1-0.2%, although the risk is probably on the upside. The outlook for 2019 remains contingent on the outcome of the Brexit negotiations. While there is scope for the economy to rebound significantly if there is a positive outcome, a disorderly exit is likely to lead to a further slowdown and possibly a recession as businesses and households adjust. As a result, the current forecasts for 2019 GDP growth are in a broad range and will contain many caveats until the political situation is resolved.

Market Data

Index Open* Close Change % Change
FTSE 100 6844 6837 -7 -0.10%
S&P 500 2599 2531 -68 -2.62%
Dax 10865 10767 -98 -0.90%
Cac 40 4853 4737 -116 -2.39%
Nikkei 225 21506 19561 -1945 -9.04%
UK 10 Year Gilt Yield 1.23 1.24 0.01 0.81%

*As at 17/12/2018


This article was written by Prydis

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