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US Factory Sector Data Disappoint

Matt Eidinger December 19, 2019

The US manufacturing sector looked vulnerable this morning as the Philly Fed manufacturing index fell well short of expectations.

US labor market data disappointed market expectations as well, but improved slightly from last week’s print.

The US dollar is trading in a narrow range against its Canadian counterpart after these dual negative outcomes.

The subdued action Thursday morning preserved the loonie’s gains from its rally earlier in the week, which brought it to the highest levels against the greenback since early November. Likewise, the trade-weighted dollar index was also flat at 97.42 this morning.

In a report issued by the Philadelphia Federal Reserve Bank, manufacturing activity fell to a 6-month low – tumbling from from 10.4 to 0.3 during December – far worse than print of 8 that markets were eying.

Manufacturing managers reported higher prices for inputs and anticipations of higher wages and benefits in the coming months. On the other hand, the average workweek edged up and managers reported optimism for the coming months.

There was some gloom in labor market data as well, as the US Department of Labor reported weekly claims for unemployment insurance fell by 18,000 last week to 234,000 despite wide increases in several large states. Markets were hoping for a reading closer to 225,000. The more reliable four-week moving average rose to 225,500.

Continuing claims rose more than 50,000 to 1,722,000 for the week ending December 7 – the first time they had edged above 1,700,000 since August.

In money markets, overnight-indexed swap (OIS) rates indicate that markets are on the fence regarding another interest rate cut in 2020 – there is only a 49.5% chance that the US Federal Reserve will decrease the fed funds rate by another quarter point by December 2020.

Overnight, after nearly twelve hours of debate between both major political parties, the US House of Representatives voted 230-197 and 229-198 in favor of two articles of impeachment against President Donald Trump. Since a conviction in the Republican controlled senate is unlikely, financial markets remain largely unmoved by the impeachment vote.

Across the pond, the Bank of England held its last monetary policy meeting of the year. In a 7 to 2 vote, the bank’s Monetary Policy Committee held the Bank Rate at 0.75%. The central bank’s tone was more upbeat, citing reduced Brexit-related concerns as well as higher growth, both in the UK and globally.

Trade related concerns have eased somewhat as we end the year – Brexit seems less intimidating in the UK and trade tensions between the US and China have cooled somewhat.

However, effects of these trade concerns continue to be felt in the US labor market and manufacturing sector, both of which registered weaker than expected readings this morning. What remains to be seen is whether financial markets can retain their newfound optimism as the holiday season ends and 2020 begins.

Matthew Eidinger
Fintech Specialist, Dealing Operations

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