In a domestically quiet day, the market focus will be on the US. The relatively strong outturn of US economic data of late, including gains in ISM manufacturing and non-manufacturing surveys suggest the US recovery is gathering steam. Moreover, the record rise in the December ADP report of 325k, and the drop in jobless claims (latest weekly initial claims fell to 372k, taking the four-week average for December to 373k - the lowest since June 2008) will focus attention on today’s payrolls report. This improvement suggests that labour market conditions are improving and adds to confidence of a decent showing from the headline payrolls survey. However, we are mindful of the technical issues surrounding the annual revisions and the wide residual between the ADP and official measures of employment, and as such we forecast payrolls picking up to a relatively modest 160k from 120k in November.
Earlier in the day, euro area data are expected to paint a contrastingly bleak picture. Unemployment rose to a euro era high of 10.3% in October. This is expected to see consumer confidence close 2011 at a 2½ year low.
Improvement in US jobless claims suggest a further gain in payrolls
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