04.01.12 Wednesday Morning

UK markets ended the week in positive fashion with the FTSE passing the 6,070 level as better-than-expected Non Farm Payrolls figures boosted investors’ appetite towards risk.

US futures also indicated a slightly higher open after the United States added 155k jobs in December compared to the 150k expected.

Gold meanwhile dropped to a four-month low and headed towards the longest run of weekly losses since 2004 after the Federal Reserve indicated they may stop their bond-buying programme.

Again, however, the week was dominated by the US fiscal cliff scenario as markets waited with baited breath to see if agreement could be reached before the year’s end.

Unsurprisingly, Wednesday’s fiscal cliff deal-inspired risk rally faded by the European open Thursday, overshadowed by concerns that US lawmakers have only kicked the can down the road like their European cousins have done through much of 2012.

The deal struck in the New Year was of course a positive given investors were almost convinced US lawmakers will fail, but truly it has only addressed certain facets of the fiscal cliff.

Lawmakers will need to kick-off another round of negotiations to compromise on a matter that both Republicans and Democrats are at total opposite ends; longer term spending cuts.

Market participants are fretting that the potential for failure in upcoming budget negotiations could prove to be too difficult to address in two months, pushing the US economy back to the brink.

Moody’s and S&P already have suggested that the latest measure to avert this crisis does not remove the threat of a downgrade to the country’s prized triple-A rating.

The IMF also warned that US lawmakers must do more in order to drum up a comprehensive plan. With all of this in mind, Wednesday’s bumper day of gains across world markets (particularly risky assets) was overdone given how financial markets retreated in the final days of 2012.

That said, the momentum behind price-action is still very much bullish with both the FTSE100 holding above the 6000 level and it is likely the S&P500 will remain above 1450.

The euro however has lost a bit of its shine against the dollar while peripheral bond yields have crept up from yesterday’s stunning move lower, particularly on the Spanish 10-year.

Focus today (Friday) has been on US Non Farm Payroll data.

Payrolls rose by 155,000 workers last month following a revised 161,000 advance in November that was more than initially estimated. The unemployment rate held at 7.8 percent, matching the lowest since December 2008.

Overall, despite the rather negative news from the FOMC minutes on Thursday regarding a split in support for the Fed's QE3 process, today’s encouraging payroll figures tied with the fact that equity markets are still receiving support from the relief that the US was able to avoid going over the fiscal cliff means that there is much to be positive about as the year unfolds.

Next Weeks Important Financial Data:

 

Jan 10^th

• GBP Official Bank Rate
• GBP MPC Rate Statement
• EUR Minimum Bid Rate
• ECB Press Conference
• USD Unemployment Claims
• JPY Current Account

Jan 11^th 

• GBP Manufacturing Production
• USD Trade Balance

 Next Weeks Significant Equity Earnings:

 

Jan 7^th 

• VM Morrison Supermarket Christmas Statement

 Jan 8^th 

• Balfour Beatty PLC Full Year Trading Update
• Dominos Pizza Group PLC Q4 Interim Management Statement
• Debenhams PLC Interim Management Statement

Jan 9^th

• J Sainsbury PLC Q3 2012-2013 Trading Statement

 Jan 10^th

• SIG PLC trading statement for the 12 months ending Dec 31^st
• Marks and Spencer PLC Q3 2012-2013 Trading Update