US: Markets dour in the early AM as oil rises on escalating geopolitical concerns. Yesterday’s ADP report was once again more bullish than expectations ahead of Friday’s Payroll data. The ADP “preview” of Friday’s job numbers reported a 187K gain v 140KE. The track record of the indicator was tarnished last month by divergent results as the indicator foresaw a 247K jump in payrolls while the BLS reported Private Payrolls rose only 113K. Today will see numbers for labor inputs, weekly claims data, factory orders, and ISM Non-Manufacturing data. Eyes remain on geopolitics and the European periphery ahead of tomorrow’s data. TBAC recommending Treasury issue 100Y bonds to lock in low rates.
Europe: The past few days tightening in the periphery CDS were reversed earlier on French comments concerning the EFSF. a French government official told reporters that France is “not in full agreement” with Germany on the future of the European Financial Stability Fund (Bloomberg). The unnamed official told reporters that France favors bond purchases by the EFSF on the primary or secondary market and backs allowing the bailout mechanism to fund bond-buybacks. The report caused SOVXWE to widen out, erasing gains from the past 48 hours. Additionally Spain’s auction of €3.5B in 2Y (€1.89B yield 3.254% v 3.717% prior; b/c 2.0x v 2.3x prior) and 5Y (€1.61B yield 4.045% v 4.542% prior; b/c 1.8x v 2.1x prior) debt was weak as were France’s auction of €8.49B in various maturities. The ebb and flow of the news process, fueled by random comments, cannot mask the ever widening yields on bond auctions. The Irish Times reports that Permanent TSB is expected to increase mortgage rates 100bp. ECB at 7:45AM, no change expected despite the uptick in hawkish rhetoric out of ECB officials in the preceding few weeks. Service PMI reports stronger across the Eurozone except in Italy (France 57.8 v 57.1E, Germany 60.3 v 60.0E, Italy 49.9 v 50.5E, EC 55.9 v 55.2). UK service PMI 54.5 v 51.3E.
Asia: Much of Asia closed for holidays. Early reports that AUD Cyclone Yasi not as bad as first feared. NZD December unemployment 6.8% v 6.5%E.
Via Brian Yelvington of Knight Capital