Daily Market Report - 09/01/2015

This year is  starting to look very similar to  2014 for Bank of England Governor Mark Carney.  With the outlook dominated by a weak euro-area economy that’s showing few signs of recovery, political risks at home and inflation below the 2 percent target, the Monetary Policy Committee left the benchmark interest rate at 0.5 percent yesterday. Investors see borrowing costs staying at a record low for the rest of the year. 

The mix of events is giving the nine-member panel little reason to end almost six years of emergency stimulus. While improving wage growth may support the case of two members who have argued in recent months that a rate increase is needed now, the prospect of another year of weak inflation as oil prices tumble is keeping them in the minority. 

Strains in the euro zone, Britain’s biggest trading partner, are holding back an economy that is starting to feel the effects of tumbling oil prices. Consumer prices rose an annual 1 percent in November, the least in more than a decade.

The Euro hit a fresh nine-year low against the dollar, in part after a surprise decrease in German manufacturing. German factory orders fell by 2.4% in November compared with the previous month, worse than expected. Increased speculation about extra stimulus measures to combat Eurozone deflation also played a part in the Euro's decline.

If the European Central Bank moves to support the region's economy with quantitative easing, or buying government bonds, as the speculation suggests, this pushes a rate rise even further into the future, making the Eurozone less attractive for investors.

Yesterday fewer Americans filed for unemployment benefits last week as labour-market tightening compelled employers to hold on to seasonal hires.  Jobless claims decreased by 4,000 to 294,000 in the week ended Jan. 3. 

Employers finding it harder to fill vacancies are probably holding on to workers hired during the holidays as the economy expands and consumers spending picks up. The need to keep staff may mean companies will soon need to also boost wages. 

Key Announcements:
09:30 – GBP: UK Industrial Production (Nov) YoY expected to fall from 1.6% to 1.1% 
13:30 – USD: US Non Farm Payroll Employment (Dec) expected to be lower at 241K form 321K 
13:30 – USD: US unemployment rate (Dec)  expected to fall from 5.7% to 5.8%

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