Strong UK Services PMI
Ahead of today’s payrolls numbers, FX markets were relatively subdued, although risk appetite was firm in the absence of any major developments in Europe. Sterling rallied after UK services PMI was above consensus at +56.0, rising from the December print of 54.0. Our UK economist notes that the details show the highest forward-looking business activity balance since May, the biggest rise on record, the strongest employment growth since March 2008, and fastest new business growth since July. This supports our view that BoE will raise asset purchase target by at most GBP50 bn in the next meeting. As far as economic data goes, the yen shows greatest sensitivity to the US employment situation, and a weak payrolls report later would likely give the yen another push higher. Extremely weak data might even be enough to trigger a round of intervention on Monday, and Japan Finance Minister Azumi’s comments overnight reinforce this view. He complained that the latest yen moves were “one-sided”, and said the price action was increasingly driven by speculation. This represents a moderate hardening of rhetoric – a step which typically precedes an act of intervention. Dallas Fed President Fisher stuck to his hawkish views. He described the new Fed projections for the path of the policy rate as ‘pure guesses’, and said economic data is already on an upswing since those projections were made. We note that he lost his FOMC vote at the end of 2011 but is due to regain it in the Jan. 2014 rotation, along with two other hawks. Consensus opinion is looking for a +140k payrolls print (UBSe. +130k) and for the unemployment rate to remain stable at 8.5%. EURUSD traded 1.3115-1.3186 and USDJPY 76.12-76.26.. Canadian payrolls data is also due on the hour.
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UBS Investment Bank