Saxo Bank Head of FX Strategy John Hardy reports that the euro continues its ascent despite Italian yields continuing to rise with key EURUSD flashpoints at 118.25, 119.25, and of course 1.20.
Article / 07 February 2013 at 6:34 GMT

3 Numbers to Watch: DE and UK industrial prod., US jobless claims

editor/analyst /
United States

The Bank of England and the European Central Bank will release announcements on monetary policy today, although it is widely expected that the target interest rates in both cases will remain unchanged (12:00 GMT for BOE and 12:45 GMT for ECB). The markets will, of course, focus on the central banks, but today’s industrial production news from the UK and Germany promise to be eventful too, providing timely data points at a critical juncture in the business cycle. Meantime, weekly jobless claims in the US will probably provide more support for expecting modest growth in the labour market.

UK Industrial Production (09:30 GMT) The December update on industrial production will be closely analysed for signs of triple-dip-recession risk. The market is expecting that we will dodge the bullet, building on last month’s precarious rebound. November industrial production advanced 0.3 percent after slumping in each of the three previous updates. But while the broad measure of output expanded modestly, the manufacturing component slipped, leaving any optimism about the future on shaky ground for this cyclically sensitive slice of Britain’s economy.

If the UK is sitting on a knife’s edge, it is still plausible to imagine that it will eventually fall on the side of growth. That is the implication in the January updates on the manufacturing and services sectors via the purchasing managers indexes (PMI). In both cases, Markit Economics reports mildly upbeat numbers for 2013’s start. That may not help with today’s news on industrial production in December. But if there is red ink in today's number, it may be easier to digest if there is some hope of a turnaround in 2013, as the PMI data imply. Salvation starting in January may look far-fetched, however, if December’s industrial output sinks dramatically. For the moment, that looks like a low-probability event. Analysts are expecting a decent gain… and not a moment too soon.


Germany Industrial Production (11:00 GMT) Yesterday’s rise in new manufacturing orders in December adds some hard data to the recent batch of improving sentiment surveys that imply that the macro outlook is improving. Higher demand from the Eurozone helped boost orders overall by a seasonally adjusted 0.8 percent in last year’s final month, rebounding from November’s 1.8 percent retreat.

More improvement is expected for today’s industrial production report: analysts project a 0.1 percent gain. True, that is a slowdown from November’s 0.2 percent increase. But if the forecast holds, industrial production can claim two straight months of expansion. Modest gains, to be sure, but the trend is critical at this stage. Recent updates on purchasing managers indexes (PMI) for Germany’s manufacturing and services sectors for January tell us that the state of macro is healing in the new year for Europe’s growth engine. It is no small point that the increase in new orders at 2012’s close align with that narrative. Additional support in today’s industrial production report will further strengthen the evidence for arguing that the all-important manufacturing group in Germany has turned a cyclical corner.


US Jobless Claims (13:30 GMT) The forward-looking clues embedded in the weekly jobless claims numbers suggest that the modest growth in payrolls will continue for the near term. The dysfunctional political climate in Washington may yet throw the economy into the cyclical ditch, but the numbers from the front line of the labor market still signal encouraging odds for a decent first quarter. Analysts don’t expect that outlook to change in today’s news on last week’s new filings for unemployment benefits. The consensus forecast sees a modest dip from last week’s 368,000 seasonally adjusted total.

The weekly claims data are quite volatile, however, and so it is best to focus on the four-week moving average for a more reliable signal of the trend. By that standard, the news is encouraging. The four-week average has recently dipped to levels last seen in 2008. The continuing fade in the ranks of the newly unemployed continues to imply that the labor market—and the economy—are set to grow... still. Today’s report is not likely to tell us otherwise.



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