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The EURO remains weak

The EURO remains weak

As markets return from the New Year break, event risk once again dominates with the IMF stating that they are not currently discussing an aid package with Hungary after the government pulled yesterday’s bond auction. With the French government due to issue €8 billion of debt this morning, equity markets are skittish. Sentiment towards the euro was not helped by comments from the Greek PM that the country faced a disorderly default in March unless the bailout package agreed in October was paid-out.

While Christmas came late for UK retailers, they are not included in the PMI Services index so the miserable trading environment ahead of the post-Christmas rush will not be included in the index. Given better than expected service sector data from the Eurozone yesterday, as well as a surprise jump in the UK PMI construction index, we look for an above consensus 52.0 outturn in December, which would help offset the expected drag from the manufacturing sector. Weather and other special effects have meant that the relationship between PMI surveys and GDP growth looks to have broken down in 2011, but if our forecasts are met then the economy should see positive, albeit sickly growth in the fourth quarter.

We suspect that markets will ignore Eurozone industrial new orders and PPI today in favour of the French debt auction. The government is hoping to raise around €8 billion in long-term debt, with maturities up to 2041.

Interpreting the ADP Employment Change series is difficult at the best of times. But December data are more difficult than usual due to a statistical problem with November that tends to lift the series well above the underlying trend due to short-term hiring connected with the Thanksgiving holiday and the start of the sales season. So we would normally expect to see some unwind in December. The ADP series saw employment rise from 115,000 in October to 206,000 in November so the consensus call for a decline back to 178,000 looks to entail some downside risk. The ISM manufacturing index did increase in December, which points to a strengthening labour market, but we suspect that this will feed through into 2012, rather than appear in December given seasonal adjustment problems.

We would similarly be sceptical of over-interpreting weekly initial jobless claims for the week ending 31st December. The data are not included in tomorrow’s payrolls report anyway and although the market is looking for a fall back to 375,000, which would confirm the sub 380,000 average that looks to have established itself in December.

Consensus is looking for the ISM non-manufacturing survey to rise from 52.0 to 53.0 in December. However, the strength of retail sales in recent months and gains from the small business survey points to some upside risk to the series and we would not be surprised to see consensus beaten this afternoon.

What does this all mean for me? Well buying your EUR, USD, AUD or any other currency at the wrong time could cost you a fortune. There is no crystal ball but Currency UK can give you the information you need to make an informed decision.

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