Daily Market Report - 07/01/2015

The euro zone economy ended 2014 with its worst quarter for over a year, December Services PMI data falling again to 51.6.continuing downturns in France and Italy and a stuttering performance by Germany has hampered growth. Britain experienced a similarly gloomy end to the year, with growth across services companies weakening to its slowest since mid-2013. That underscored a wider loss of pace in the economy as an election approaches.

Italy's service sector shrank for the first time in three months in December while overall business activity in France also contracted PMI figures showed. With fears cheap oil will tip the now-19-country bloc into deflation prompting calls for urgent action by the European Central Bank to stimulate prices in the economy.

Growth at U.K. service companies slowed more than economists forecast in December, adding to signs the economy lost momentum at the end of 2014. The Markit Purchasing Managers’ (PMI) Index fell to 55.8 from 58.6 in November. That’s the lowest since May 2013 and compared with the median estimate of economists for 58.5. While the measure of new business declined to a 20-month low, the growth remained well above trend according to the Markit Survey. It also said that companies’ cost pressures remain muted by historical standards.

The loss of momentum in the UK economy toward the year end will no doubt fuel worries that the economic upturn is too fragile to withstand higher interest rates. Coupled a with lower inflation rates due to record low oil prices suggests it is currently unlikely interest rates will be hiked in 2015. 

In the US Markit reported yesterday that the US service sector PMI fell to a 10-month low last month, dropping to 53.3 in December. That still shows growth, but much more modest than in November. Businesses reported that new business, and output, both grew at a slower rate as 2014 ground to a halt.

Key Announcements:
10:00 – EUR: Euro zone Core CPI (Dec) YOY expected to fall from 0.7% to 0.6%
10:00 – EUR: Euro zone unemployment rate (Dec) expected to be unchanged at 11.5% 
13:15 – USD: US ADP unemployment change (Dec) expected to improve from 208K to 225K
13:30 – USD: US Trade Balance (Nov) expected to improve from -43.4B to -42B

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