Market Outlook - BNP PARIBAS - Investment Services India

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Key Data Preview Chart 13: US NM ISM Components Source: Reuters EcoWin Pro Jan (f) Dec Nov Oct NM Composite 51.5 50.1 48.7 50.6 Prices Paid 57.5 58.7 57.8 53.0 Key Point: The ISM services index is expected to improve to 51.5 in January BNP Paribas Forecast: Up US: ISM Non Manufacturing (January) Release Date: Wednesday 3 February The ISM non-manufacturing index improved to 50.1 in December from a reading of 48.7 previously, but the index remained below the recent high of 50.9 recorded in September. We believe the index will reach 51.5 in January. Several factors suggest economic prospects in the non-manufacturing sector are improving, although the pace of improvement remains moderate. Initial claims declined in January, but continuing claims including emergency and extended programmes still remain at record highs. ISM Production has been quite strong lately as improving global trade and the upswing of the inventory cycle stimulate activity, but NM ISM new orders seem to lag positive improvements in the manufacturing sector. Nevertheless, seven non-manufacturing industries indicated growth in December, including Retail Trade: "The environment seems to be improving, but we will continue to be cautious as we look forward". Nine industries still reported contraction. Overall, we expect the upward trend in NM ISM to continue into January and the number of industries reporting growth to increase. Chart 14: Level of German Output & Orders 120 115 110 105 100 95 90 85 80 75 Index Levels, 2005=100 Output 70 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 Source: Reuters EcoWin Pro Orders (RHS) Dec (f) Nov Oct Sep Output % m/m 1.5 0.7 -1.7 3.0 Output % y/y -2.7 -8.0 -12.4 -12.6 Orders % m/m 1.0 2.8 -1.9 1.3 Orders % y/y 10.4 1.3 -8.3 -12.6 Key Point: Leading indicators suggest further ‘catch-up’ for orders and output. 130 120 110 100 90 80 70 60 BNP Paribas Forecast: Still Strengthening Germany: Industrial Production & Orders (December) Release Date: Thursday 4 & Friday 5 February Leading indicators of industrial production and orders point to further increases in the period ahead. The PMI for the manufacturing sector rose for the twelfth month in a row in January, reaching its highest level since mid-2008. The sub-index for output rose sharply, to 58.4, five percentage points above its long-run average. On the basis of the signals from the surveys, we look for a strong 1.5% m/m increase in production in December. This would imply a 1.8% q/q rise in industrial output for Q4 as a whole, the second successive strong gain and consistent with a further expansion in GDP in Q4. Given the exceptionally large gain in manufacturing orders in November, 2.8% m/m, we look for a moderation in the rate of increase in December. Still, given our forecast of a 1% m/m rise, orders in Q4 as a whole will have increased by almost 2% q/q, the third strong q/q gain in succession. Given favourable base effects relating to the collapse in activity in late 2008 and early 2009, y/y rates of change will continue to rise sharply in coming months. The y/y rate of change in orders has already turned positive and output should follow suit from January onwards. Despite the near-10% rebound since April 2009, the level of industrial production remains around 15 percentage points below its peak in spring 2008. . Market Economics 29 January 2010 Market Mover 22 62 www.GlobalMarkets.bnpparibas.com
Key Data Preview Chart 15: US Non-Farm Productivity Source: Reuters EcoWin Pro % q/q, AR Q4 (f) Q3 Q2 Q1 NF Productivity 5.2 8.1 6.9 0.3 ULC -2.5 -2.5 0.0 -5.0 BNP Paribas Forecast: Productivity Surge US: Non-Farm Productivity & ULC (Q4, preliminary) Release Date: Thursday 4 February Non-farm productivity is forecast to continue its upward push, rising 5.2% q/q AR in Q4 following a 8.1% q/q AR surge in Q3. Non-farm business output is expected to grow strongly, and while hours worked are beginning to pick up, they fell modestly overall in Q4. Productivity is surging early in the economic recovery and our forecast would imply growth of 5.1% y/y. Meanwhile, unit labour costs are forecast to decline 2.5% q/q AR after a similar decline in the previous quarter. Compensation per hour is estimated to have risen much more slowly than productivity as the weakest labour market in the post-war period is allowing employers to wring out productivity gains while reducing labour costs. Our forecast would imply a 2.5% y/y decline in unit labour costs, the lowest reading in fifty years, highlighting our concerns that deflationary pressures will come to the fore in 2010. Key Point: Productivity growth is forecast to surge again in Q4 as output grew strongly while hours continued to contract. Unit labour costs should continue to plunge. Chart 16: Canadian Employment Source: Reuters EcoWin Pro Jan (f) Dec Nov Oct Unemployment rate % 8.5 8.5 8.5 8.6 Payroll jobs (k) 15.0 -2.6 79.1 -43.2 Key Point: Canadian employment is forecast to increase by 15k in January after a surprise stall in December. BNP Paribas Forecast: Upward Momentum Canada: Labour Report (January) Release Date: Friday 5 February Canadian employment remains very volatile. Indeed, after shrinking by 43k in October, employment surged by 79k in November then effectively stalled in December, easing by 2.6k. In spite of this volatility, the underlying momentum remains positive and conditions have improved significantly since the beginning of 2009. In addition, the disappointing news stemming from the negative payrolls reading in December was partially offset by a 1.5% m/m increase in hours worked, suggesting the economic recovery remains on track. Nevertheless, the growth momentum of hours worked has eased compared to Q3, implying downside risks remain. In January, we expect employers to create 15k jobs. Hiring in the service industry should increase at a healthy pace, supported by activity in the real estate sector. In contrast, conditions are likely to remain subdued in the manufacturing sector. The unemployment rate is expected to remain at 8.5% in January. Market Economics 29 January 2010 Market Mover 22 63 www.GlobalMarkets.bnpparibas.com
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Market Economics | Interest Rate St
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GGBs and other peripherals will rem
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The subtle changes in the wording o
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US: Get It While You Can • As the
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500,000, the months-supply level of
Page 11 and 12: France: Roaring Consumption • Ret
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Page 15 and 16: UK Inflation: Bridging the Gap •
Page 17 and 18: eceive roughly 60/40 weight within
Page 19 and 20: 1.2% m/m in November, partly offset
Page 21 and 22: or absence of competitors in a spec
Page 23 and 24: Japan: Polarisation in Machine Tool
Page 25 and 26: Australia: The Next Step • Data r
Page 27 and 28: US: Post-FOMC Treasury Market Overv
Page 29 and 30: US: Rolling Down the Agency Spread
Page 31 and 32: US: Poor Housing Underscores MBS Su
Page 33 and 34: Fannie Mae has not discussed the in
Page 35 and 36: EUR: Timing the 20Y Point • The l
Page 37 and 38: EUR 3-5bn (new 10y) in February? Co
Page 39 and 40: JGBs: Supply Continues to Weigh •
Page 41 and 42: Table 1: BNP Paribas' Inflation For
Page 43 and 44: Table 3: BNP Paribas' Inflation For
Page 45 and 46: Pricing Date Repo Rate EUR DRI FRF
Page 47 and 48: CNY: Revaluation and FX Reserves
Page 49 and 50: domestic-demand led one is underway
Page 51 and 52: USD Bullish Signals • USD Trade W
Page 53 and 54: Currency Spot Trade Recommendations
Page 55 and 56: Economic Calendar: 29 Jan - 5 Feb (
Page 57 and 58: Key Data Preview Chart 3: Japanese
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Page 65 and 66: Economic Calendar: 8 February - 5 M
Page 67 and 68: Next week's T-Bills Supply Date Cou
Page 69 and 70: Economic Forecasts GDP Year 2009 20
Page 71 and 72: Market Coverage Market Economics Pa
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