January 9th – Weekly Update

  • The economic calendar underpinned positive sentiment during a holidayshortened week, as stocks posted strong gains globally. The Dow Jones Industrial Average surpassed the 25,000 mark, a new record. Oil and gold prices were up for the week; the widely watched 10-year U.S. Treasury yield rose from 2.42% to 2.48%.
  • Nonfarm payrolls expanded by 148,000 jobs in December, below the 190K consensus. Yet it represented fairly solid growth within the theme of a tight labor market, and was well above the 75–100K range Fed officials say is needed to keep the unemployment rate steady. Wages were also a focus; December hourly earnings growth came in at 0.3% m/m, in line with expectations. The average workweek was unchanged at 34.5 hours.
  • The December payrolls report is unlikely to end discussion of the relationship between employment and wages. The breakdown of the Phillips curve has been on the Fed’s radar; the FOMC’s December minutes note that despite reports of businesses experiencing difficulty finding workers in several districts, there has not been a meaningful increase in wages.
  • The U.S. ISM manufacturing index hit a three-month high in December following a well-received batch of global manufacturing PMIs. Better-than-expected November construction spending prompted some analysts to revise their Q4 GDP forecasts upward. December auto sales came in ahead of expectations.
  • The week also featured a generally positive batch of global services PMIs. JP Morgan’s Global Services Business Activity Index increased to 53.9 in December from 53.7 in November, matching the highest level since 2Q15. Markit’s U.S. services PMI slipped to 53.7 in December from 54.5 in November, but came in ahead of the 52.4 flash reading, representing one of the largest upward revisions on record. There were also signs of strength from Markit’s Eurozone Services PMI and the China Caixin Services PMI.
  • In a speech on Friday, Philadelphia Fed President Patrick Harker (2018 voter) highlighted weak inflation in the United States and around the globe, and said that given his uncertainty about the longer-term outlook he believes two rate increases are likely to be appropriate for 2018, compared to the Street consensus for three.

CPWM Weekly Market Monitor (2018.01.05)