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The Week In Hindsight, 10 January 2014

Global stocks remained buoyant on Friday despite mixed messages in US jobs numbers. New jobs added to the economy came in at just 74,000 vs a forecast addition of 196,000. This was while the unemployment rate declined to 6.7%, its lowest level since before the financial crisis.

Following the releases, Goldman Sachs and Societe Generali both issued statements iterating that expectations for the Fed to begin tapering this month remain unchanged despite the slowdown in new jobs growth.

Markets shrugged off the payrolls outcome, preferring to focus instead upon the positive side of the picture. This was as the Bureau for Labour Statistics confirmed that close to a million long term unemployed workers in the US returned to the labour market throughout 2013 as confidence in the recovery increased.

The employment numbers come ahead of a week populated with yet more earnings figures, December inflation data and retail sales numbers for both the US and UK economies.

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FTSE WELL SUPPORTED DESPITE GLOOMY UPDATES FROM RETAILERS AND PULLBACK IN UK PMI’S

The rate of recovery in the UK appeared to slow over the previous week as Manufacturing, Construction and Services PMI’s all missed expectations. Manufacturing production numbers also came in flat against forecasts for marginal growth.

The deterioration in the economic data department sent the pound into decline but did little to deter the FTSE which has maintained its bullish stance close to previous highs.

The resilience of the FTSE comes despite gloomy updates from some of the UK retailers. Tesco, Morrison’s and Marks & Spencer’s all posted disappointing performances throughout the closing stages of last year. Despite the poorer numbers emerging from most of the big four, J Sainsbury’s gave a positive update which showed earnings increased by 7% over the period.

The Bank of England kept rates unchanged this week, as expected, while the governor refrained from issuing more guidance on interest rates. This is as unemployment in both the UK and the US continues to fall faster than initial policy maker forecasts.

The continued decline in unemployment, along with the subsidence of inflation sees consumer incomes as a likely candidate for the next focus flavour of the month. This is particularly the case in the UK where incomes have declined or stagnated for a number of years

Many analysts believe a question mark will remain over the durability of the UK recovery until this trend is reversed. This is due to the UK economy’s reliance upon consumer spending.

FTSE 100 WITH DOW JONES OVERLAY