Daily Market Report - 02/02/2015

American consumers upped their purchasing in the fourth quarter, just as companies hit the brakes. While the economy grew at a 2.6 percent annualised rate, the gain fell short of the median forecasts and was well below the 5 percent pace in the third quarter.

Cheaper petrol prices and the largest employment increase since 1999 are boosting household confidence, increasing the odds that consumer spending can sustain gains following its biggest advance in almost nine years. At the same time, business investment is cooling as companies such as Caterpillar say plunging oil prices, a rising dollar and slowing growth abroad hurt sales globally.

Consumer spending, which accounts for almost 70 percent of the economy, climbed at a 4.3 percent rate, more than projected and the biggest gain since the first quarter of 2006. Households splurged on clothing, recreation and going out for a spin in the car as sales of gasoline climbed even after taking into account the drop in prices.

Another report showed American consumer confidence reached an 11-year high in January as a strengthening jobs market and plunging gas prices kept households looking on the bright side. The University of Michigan final consumer sentiment index rose to 98.1, the highest since January 2004, from 93.6 in December.

However companies are not as enthusiastic. Business investment increased at a 2.3 percent annualized rate in the fourth quarter, compared with a 7.7 percent gain in the third quarter. Corporate spending on equipment dropped at a 1.9 percent pace, the biggest decline since the second quarter of 2009. A widening trade deficit as imports climbed three times faster than exports, and a slump in defence spending following a third-quarter surge, held back growth last quarter, Friday’s report showed.

Federal Reserve policy makers are monitoring economic progress as they weigh their first interest rate increase since 2006. In a statement following a meeting this week, the central bank acknowledged global risks, saying that it will take into account readings on “international developments” as it decides how long to keep rates low. Federal Reserve Bank of St. Louis President James Bullard said in an interview Friday in New York that investors are wrong to expect the Fed to postpone an interest-rate increase beyond midyear, with the U.S. economy leading global growth and unemployment dropping.

Key Announcements:
GBP - 09:30 : UK manufacturing PMI (Jan) expected to be lower at 52.5 at 52.6
USD - 13:30 : ISM manufacturing PMI (Jan) expected to be lower at 54.5 from 55.5

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