Market Report

Yesterday we saw the Dollar recover slightly after indications that the interest rate may be increased again, rather than the widely expected softening of policy.

Today we see the release of the US Non Farm Payrolls at 13:30, and we are looking for a rise of 125K. With the recent recovery in the Dollar, we should be looking closely at any deviations from the expected figure. We also have FED chairman Bernanke speaking this evening.

There are a number of important releases from Europe today. These include retail sales, PMI unemployment and PPI.

Have a good weekend all.

DE

Yesterday the Dollar made good gains against Sterling after better than expect figures late in the afternoon. The Institute for Supply Management (ISM) figures came out better that expect and was above the 50 mark. Later in the evening we saw the release of the minutes from the Fed latest meeting. The main issues that came from the statement released were that several members saw "SUBDUED TONE" of data showing downside risk to growth. The core inflation reading improved "MODESTLY" and nearly all members saw core inflation "UNCOMFORTABLY HIGH".

At 09:30, the services PMI is due to be released. November's PMI was the highest since June 1997, so it seems reasonable to expect some consolidation from that strength. Also at 09:30, we expect the Bank of England to report that there were 128,000 mortgage approvals made in November - a three year high. Our view on the cash mortgage lending data in this release is a touch lower than consensus, but nonetheless firm (at GBP9.9bn advanced in November, versus the market expectation of GBP10bn).At 10:30, we expect the consumer confidence balance to edge up to -5 in December, from -7. The market expects a slightly stronger print of -4. MPC member Blanchflower is speaking at the Cambridge Chamber of Commerce at 12:30.

Eurozone services PMI and US non-manufacturing ISM seen edging up; Eurozone "flash" HICP expected to remain unchanged at 1.9% y/y in December. The Eurozone services PMI (9am) and "flash" December HICP (10am) provide the main data focus this morning, while US initial claims (1.30pm), non-manufacturing ISM and factory orders (both 3pm) are published this afternoon.

Plenty of data today so expect some moves have a good one.

DH

Yesterday GBP seemed to have a very strong footing, making considerable ground against a retreating USD. These gains come on a day when the economic data disappointed. The manufacturing PMI slipped a little in December, heightening concerns that the sector is losing traction, a view endorsed by some recent shortfalls in the hard data on manufacturing output. Yet the market chose to disregard it, justifiably so given the data is also likely to go largely ignored by the Bank of England.

Today the main focus today is on the US manufacturing ISM due out at 3 o'clock this afternoon. The consensus expect this figure to be 50.0, should we this figure below 50 this will almost most certainly lead to the Federal Reserve cut interest rates.

At 7 o'clock this evening we have the minutes from the Federal Reserves last meeting regarding Interest Rates. In the statement released, we expect them to emphasize that the Committee still considers upside inflation risks more important than downside growth risks and that the Fed remains focused on the possible need for future tightening.

In the Eurozone the key event is German December unemployment. It must be seasonal festivities that have kept the leakers at bay, for we've yet to see these data undergo their usual premature release. Unemployment usually rises strongly in December as the construction sector shuts down (as snow falls), which is why the seasonal adjustment process assumes there is a typical rise of 180k or so in December non-adjusted unemployment.

However, December 06 was quite mild and so construction related layoffs probably were a lot less than usual, which is why we look for a 135k unadjusted increase, corresponding to a seasonally adjusted decrease of 45k, in line with the consensus. If anything, the risks seem to be for a larger seasonally adjusted fall than the consensus.

DH

First off all may I start by wishing everyone happy New Year and all the best for 2007

Today, the main data focus is on the E12 manufacturing PMIs for December due at 9am. In November, though the two country PMIs so far released were weaker - the Dutch and the Austrian manufacturing PMI.

According to SPSL, the retail traffic analyst, the 27th December was the busiest sales shopping day for four years and busier than any shopping day in the run-up to Christmas. It estimated that the number of shoppers out on Boxing Day was up 1.6% on a year earlier, 3.7% higher on December 27 and 3% higher on December 28.

Meanwhile, another traffic analyst FootFall showed a 6.9% annual jump in Boxing Day traffic and a 0.8% increase on December 27. Despite the positive tone of these reports, it's important to note that the relationship between these complied shopper traffic numbers and official sales volume data is not particularly strong, so at best, these numbers are a tentative sign that High Street activity fared reasonably well in recent days. The manufacturing PMI for December is released at 09:30 number expected to be around 52.3.

No data from the US today due to the US national day of mourning for former President Ford, the minutes of the December FOMC meeting as well as the manufacturing ISM will now be released on Wednesday, rather than today as originally scheduled.

DH

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