US ISM manufacturing survey slips to 11 month low

• The ISM's reading of US factory activity declined to 58.7 last month, the lowest level since January 2021, from 61.1 in November. The decline comes amid a cooling in demand for goods.  The survey's measure of supplier deliveries declined to a reading of 64.9 from 72.2 in November. A reading above 50% indicates slower deliveries to factories. All six biggest manufacturing industries; chemical products, fabricated metal products, computer and electronic products, food, transportation equipment, and petroleum and coal products - reported moderate to strong growth. The survey's measure of prices paid by manufacturers tumbled to 68.2 last month, the lowest level since November 2020, from 82.4 in November. The 14.2-point drop was the biggest since October 2011, reflecting that supply constraints are starting to ease.  The survey's forward-looking new orders sub-index eased to a reading of 60.4 from 61.5 in November. Factories hired more workers, but turnover rates remained high, a trend which manufacturers said started in August. That was reflected in the survey’s measure of manufacturing employment which rose to an eight-month high of 54.2 from 53.3 in November.
• The US monthly Job Openings and Labor Turnover Survey, (JOLTS) report, showed the number of Americans voluntarily quitting their jobs surged to a record 4.5mn in November. The accommodation and food services industry led the number of quits, with big increases in the health care and social assistance,  transportation, warehousing and utilities sectors. All four regions in the US reported a rise in the number of people quitting their jobs. Job openings, a measure of labor demand, dropped by 529,000 to a still-high 10.6 million, with large declines in job openings in the accommodation and food services, construction and nondurable goods manufacturing industries. The data is an indication that higher wages could prevail for a while, in a robust labor market.
• The final reading of the UK Manufacturing PMI for December stood at 57.9, up from a preliminary reading of 57.6 and close to November's three-month high of 58.1. The survey showed that job growth slowed but new orders and output rose at a faster pace than in November. Surprisingly, prices charged by factories rose at their fastest pace on record, this despite input prices rising at their slowest pace in three months. The survey also showed slower jobs growth however new orders and output rose at a faster pace than in November.

Today’s Economic Data and Events

17:15     US ADP Nonfarm Employment Change (Dec) Forecast 390K          

19:30     US Crude Oil Inventories Forecast -2.800M          

23:00     US FOMC Meeting Minutes                        

Fixed Income

• US Treasuries extended their sell-off overnight with little material catalyst. As the market awaits the minutes of the December FOMC meeting, out later today, we expect downward pressure on bond markets will continue as investors price in a series of rate hikes through 2022. The front end of the curve saw little movement with 2yr yields actually closing slightly lower overnight but longer-term yields continue to push higher with the 10yr closing at 1.6473%, up almost another 2bps.
• As the UK opened up for the first day of trading in 2022 gilt markets are also seeming to price in a steady pace of rate hikes. Yields on 2yr gilts rose almost 9bps to 0.753% while the 10yr gilt yield rose almost 12bps to close at 1.083%.
• Emerging market bonds closed mixed overnight with sell-offs in Indian and South African 10yrs to the tune of around 5bps and 8bps respectively while Turkish bonds rallied with the 10yr yield falling more than 10bps to 23.2%.
• Regional markets so far remained quiet in 2022.

FX

• The broad US dollar index closed little changed overnight thanks to minimal movement against the Euro. Nevertheless, the single currency extended its slide, falling around 0.1% to 1.287 overnight. USDJPY was the notable mover overnight though, rising by 0.73% to 116.16 as investors rotate out of risk havens at the start of the year.
• GBPUSD was another notable gainer against the dollar, up almost 0.4% to 1.3530 as UK prime minister Boris Johnson said that the country would seek to “ride out” the current Omicron sparked wave of Covid-19 cases.
• Elsewhere, commodity currencies recovered some ground overnight amid a rally in industrial materials. USDCAD fell 0.29% to 1.2708 while AUDUSD was up 0.6% to 0.7236 and NZDUSD gained 0.3% to 0.6808.

Equities

• Yesterday was a broadly positive one for global equity markets as those markets which had still been closed for New Year holidays largely reopened on a strong footing. While China’s Shanghai Composite lost -0.2%, Japan’s Nikkei gained 1.8% on its first trading day of 2022.
• In Europe, the UK’s FTSE 100 added 1.6% on its first open day of the year, bolstered by the Westminster government’s determination to keep new Covid-19 restrictions as a last resort. Travel stocks in particular performed well. Elsewhere, the DAX added 0.8% and the CAC 1.4%.
• Things were more mixed in the US ahead of the FOMC minutes release later today. The S&P 500 lost -0.1% and the NASDAQ -1.3%, with only the Dow Jones securing gains as it climbed 0.6%.
• Within the wider region, Turkey’s Borsa Istanbul 100 climbed 1.9% as it benefitted from a renewed depreciation of the lira. The Tadawul gained 0.3%, Egypt’s EGX 30 added 0.7%, while locally the DFM added 0.8% and the ADX closed -0.7% lower.

Commodities

• Oil prices advanced again as OPEC+ agreed to add another 400k b/d to markets in February. Brent futures settled at USD 80/b, up 1.29% while WTI added 1.2% to close at USD 76.99/b. Time spreads in both markets have recovered from their mid-December doldrums with 1-2 month spreads in WTI at USD 0.27/b and the same spread in Brent at USD 0.45/b.
• OPEC+ did agree to add an additional 400k b/d to markets in February, extending their output increases from August. Markets are taking the higher output as a sign of confidence that demand will absorb the extra barrels.

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