Welcome to another payrolls Friday. As a house we are expecting headline/private payrolls to come in at +170k/ +185k in January. This is down from +200k/+212k in December largely reflecting the payback in courier and messenger employment last month (+42k). DB also expects the unemployment rate to fall 0.1pp to 8.4% in January. For the record the market consensus for the headline and private payrolls are +140k and +160k respectively and for an unchanged 8.5% unemployment rate.

Ahead of payrolls, markets have been mostly in consolidation mode over the past 24 hours. Starting with the Asian session overnight the Hang Seng (-0.1%), Nikkei (-0.1%) and the Shanghai Composite (-0.1%) are all trading mildly softer on the day as we type. There has been little market reaction to China’s non-manufacturing PMI which slowed to 52.9 in January from 56.0 the month before.

This all followed a fairly uneventful Thursday that saw the S&P 500 slightly higher (+0.11%) after gains in Energy (+0.48%) and Financials (+0.46%). Bernanke’s testimony before the House Budget Committee yesterday largely reinforced the official FOMC view last week and held few surprises. On the data front initial jobless claims declined further (367k v 371k expected) while ICSC chain store sales were stronger (+4.8% v +3.5% in December). Back to the S&P 500 we note that the index has only finished higher on 3 payroll Fridays since the start of 2011 with most recent being in May. Let’s see if we buck this trend today.

Elsewhere there has been no lack of coverage on Facebook’s pending IPO but as credit analysts we are somewhat fascinated to learn that the company has entered into a $2.5bn five-year unsecured revolving credit facility at a spread of Libor+100bp if drawn (undrawn fees 15bp per annum). In what would be the biggest internet IPO in history the company plans to raise $5bn from the offering. This far exceeds Google’s $1.9bn IPO in 2004. The company is said to be considering a firm valuation of $75-100bn. The top end of that range would value FB at around 27x trailing 12-month sales which is apparently more than double Google’s valuation when it went public in 2004. A $100bn market capitalisation would also make Facebook the 27th largest company in the S&P 500 (between McDonald’s and Citigroup) and the 9th largest on the Nasdaq.

Back to macro events, the pressure on OSI (official sector involvement) is starting to build with Greece joining the IMF in upping the pressure on the ECB to participate in the debt swap. According to the Irish Examiner, Greece’s Finance Minister said that the ECB must take part in the exchange. He also warned that the second rescue package also hinges on other issues being resolved such as labour reforms and how Greek banks are to be recapitalised. The ekathimerini overnight said that the ECB has already examined all possible scenarios for its participation in a debt restructuring.

We will probably hear more on this throughout the weekend. Papademos still hasn’t secured broad political support for more austerity required to secure the extra funding from international creditors. The WSJ noted that today or tomorrow Papademos will meet with leaders of his interim coalition government to gain consensus on further austerity.

Over the weekend, IIF officials are due in Athens to wrap up the PSI debt restructuring talks. Interestingly the UK Telegraph overnight said that the Troika has found a 'EU15bn blackhole' in Greece's budget caused by the deepening recession. We note this was first reported by the Der Spiegel last weekend but it may remind the market of the challenges faced by the
austerity stricken economy.

Away from Greece, Bundesbank’s Weidmann (who has been a bit quiet of late) was quite critical of the ECB in saying that the ECB’s liquidity provision is “too generous”. There was also an Interesting response from Schaeuble when he was said “I hope so” when asked if there would still be 17 Eurozone member states at the end of 2012. We also had the standard Chinese proclamation of support for Europe with Premier Wen yesterday saying that China is investigating ways to be more deeply involved in the EFSF and the ESM. To date China have certainly spent more time issuing comforting words on Europe than they
have offering money.

Looking at the day ahead Services PMI readings are the highlight in Europe. We also have two Portuguese banks reporting their quarterly results today which may tells us some interesting insights around their 3-year LTRO usage. In the US we have the ISM Non Manufacturing data for January but all eyes will be on Payrolls though.

Jim Reid
Strategist

Colin Tan, CFA
Research Analyst

Deutsche Bank