Daily Market Report - 08/01/2015

The European Central Bank (ECB) is expected to come under more pressure to boost the supply of cheap credit (QE) to the Eurozone after figures showed a much-feared period of deflation started in December. This has been triggered by tumbling oil prices. A flash estimate of inflation found that a dramatic fall in fuel costs following the halving of oil prices dragged Inflation down by 0.2%.

Some officials have stressed that the dip in inflation could be a temporary feature as it stems from a short-term fall in oil prices which should benefit economic growth over the next year without the need for QE. Eurostat also said that core inflation, which excludes the volatile energy and unprocessed food prices, was stable at 0.7% year-on-year in December – the same level as in November and October. The euro weakened yesterday, down 0.33% to a new nine-year low against the US dollar.

Employment data from Germany and Italy continue to diverge. The German unemployment rate has fallen to a record low of just 6.5% in December, with the labour market showing resilience despite tough economic times in Europe. It is the lowest rate since the reunification in 1990. Over in Italy, it’s a bleaker situation. The Italian jobless rate hit a record high at 13.4% in November, highlighting its economic plight (Italy is currently in recession, and has been either contracting or stagnating for the last three years).

More positive news concerning the USA yesterday, US private firms created 241,000 new jobs in December, which was around 15,000 more than expected. November’s private sector payroll figures were also revised higher, to show 227,000 new jobs were created, up from the previous figure of 208,000. It suggests America’s labour force ended 2014 quite robustly. The wider Non-Farm Payroll, measuring employment across the US economy, is released on Friday.

Also the slide oil prices has helped America narrow its trade gap. The US trade deficit hit an 11-month low of $39bn in November, compared to estimates of $42bn. Petroleum imports fell to their lowest value in around 20 years, helping to cut overall imports by around 2.2%. Exports declined by 1.0%.

India’s Rupee has continued to strengthen as foreign banks boosted holdings of local debt and stocks rebounded after a 3 day loss. Overseas lenders bought ($1.2 billion) of bonds yesterday, the biggest single-day purchase since August.

Key Announcements:
12:00 – GBP: Bank of England Interest Rate Decision expected to remain unchnaged at 0.50%
13:30 – USD: US Initial Jobless Claims expected to fall to 290k
13:30 – USD: US Continuing Jobless expected to rise to 2.37M

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