Inflation accelerates in major Eurozone economies

Both German and French consumer price inflation rose in December, in part due to base effects associated with these governments cutting energy-price subsidies to households. German CPI rose sharply, increasing to 3.8% y/y in December from 2.3% in November; while French CPI rose to 4.1% y/y in December, up from 3.9% in November. Eurozone inflation is due to be released today, with expectations of a rise to 3% y/y in December from 2.4% in November.

US initial jobless claims fell well below consensus expectations for the week ending 30 December, dropping to 202k from 220k the week prior, with fewer holiday season-related layoffs taking place. Claims figures tend to be volatile, particularly at the end of the year, meaning that the timing of these seasonal layoffs may have been shifted back into January. Continuing claim for the week ending 23 December were also lower, falling to 1.86m from 1.88m.

The ADP measure of the change in US employment points to a 164k rise in private payrolls in December, up from 101k in November. Sectors with the largest gains included leisure and hospitality, education and health care. While the manufacturing sector cut payrolls for a fourth consecutive month. The ADP measure, however, doesn’t tend to be a good predictor of the official private payroll data, which is due for release later today. Consensus expectations for December official private payrolls is for a 130k rise, down from 150k in November. Nonfarm payrolls are expected to increase by 175k in December, after gaining 199k the month prior.

Today’s Economic Data and Events

• 14:00 EC CPI (Dec): forecast 3.0% y/y
• 17:30 US Change in nonfarm payrolls (Dec): forecast 175k
• 17:30 US unemployment rate (Dec): forecast 3.8%

Fixed Income

• US Treasury yields moved higher on Thursday, following stronger-than-expected US labour market data. The yield on the 2yr rose 5bps to 4.3845%. The yield on the 10yr gained 8bps to end the day at 3.9988%.
• There were also sharp rises across major European bond yields. The 2yr Gilt yield rose 10bps to 4.1820%, while the 10y Gilt yield increased by 9bps to 3.7246%. The 10yr Bund yield gained 10bps to reach 2.122%, following the rise in German CPI data in December.
• Credit markets across the GCC were softer overnight with a GCC wide USD index down about 0.7%. All countries were lower while the sell-off was shared among both high-yield and investment grade bonds.

FX

• Moves in the dollar against major peers was mixed on Thursday. EURUSD gained 0.2% to 1.0945, and GBPUSD rose 0.13% to 1.2682, while USDJPY gained 0.9% for a second consecutive day to reach 144.63.
• The dollar was stronger against major commodity currencies. AUDUSD fell 0.4% to 0.6707, NZDUSD declined 0.2% to 0.6235. USDCAD was broadly flat, falling only marginally (0.02%) to 1.335.

Equities

• Technology stocks once again drove losses on US equity markets during Thursday’s trading. The S&P 500 fell 0.34%, and the Nasdaq dropped 0.56%. The S&P 500 was broadly flat, rising by a marginal 0.03%.
• In contrast, there were gains in major European equity indices. The Eurostoxx 50 rose 0.58%, the CAC 40 gained 0.52%, and the Dax rose by 0.48%. The FTSE 100 also gained 0.53% on the day.
• Locally, the DFMGI gained 0.24%, while the ADXGI dropped 0.83%.

Commodities

• Brent and WTI futures dropped on Thursday, with traders weighing up continued geo-political tension in the Middle East and North Africa against news that US gasoline inventories had seen their biggest one-week gain since 1993 of almost 11m bbl. Crude stocks dropped about 4.5m bbl last week. US oil production nudged slightly lower to 13.2m b/d. Brent fell 0.84% to USD 77.59/b and WTI dropped 0.7% to USD 72.19/b.