House builders impress Weaker NFP on the cards

Both sterling and the FTSE managed to turn their fortunes around in the afternoon session; the FTSE successfully tucking yet another record close under it’s belt, making it the longest stretch of record closes since May 1997.

House builders continue to rally

House builders were once again on fine form as yet more good news meant they dominated the upper reaches of the FTSE. Yesterday we learnt that the construction PMI for December beat on the upside, whilst today Persimmon gave a bullish update; when we add into the equation improving mortgage approvals and supportive government initiatives the outlook is looking strong. Perhaps the area that is causing most concern is that of house prices, but these appear to be showing resilience and so far, haven’t fallen off the Brexit cliff as forecast. Still with Article 50 yet to be triggered, the picture could alter fairly quickly; but at least the data is depicting a sector with strong foundations.

US ADP payrolls undershoot

Data coming out of the US was more mixed. Whilst ISM services beat on the upside the ADP payrolls came in significantly weaker than expected. Private payrolls rose by 153,000 from November to December, less than the 168,000 forecast. Whilst this could just be a one off, it is more likely that we are seeing a tightening of the labour force which is sitting close to full employment after 7 years of unprecedented growth: There is no doubt that growth remain strong but it is slowing.

ADP figures are often a good pre-cursor to the Non- farm payroll figures (due tomorrow) and generally reflect similar trends. Weaker than expected ADP payrolls could be an indication that the NFP report will show only modest gains. It is worth noting that the disparity between the two reports can be more pronounced in December; however, with only 180,000 non-farm payrolls expected to be added in December, compared to 229,000 a year previous, the slowing trend is clear. On the plus side unemployment claims fell to 235,000, from a previously revised 263,000.

The soft labour data has kept the dollar weak against a basket of currencies with the dollar index returning to the 101 handle for the first time in 2017. Heading into tomorrow the dollar will remain very much in focus as investors look towards the non-farm payrolls.