Friday October 31, 2014 - 18:51:48 GMT
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ECONOMIC DATA ANALYSIS - US PAYROLLS WATCHED FOR SIGNS OF FURTHER LABOUR MARKET TIGHTENING
ANALYSIS FRIDAY 31 OCTOBER 2014
PAYROLLS WATCHED FOR SIGNS OF FURTHER LABOUR MARKET TIGHTENING
- US payrolls to set
tone for interest rates expectations
- No policy changes
expected for BoE or ECB policy meetings
- UK data watched for
indications that economic growth is slowing
past week has seen contrasting monetary policy messages from the US and Japan. Although the US
Fed brought QE to a close and did not change its forward guidance on
interest rates, there was a hardening of the language about the
tightening of the labour market. This, along with a seeming downplaying of
disinflation risks, sent a message that despite recent financial market
gyrations, the Fed is on course to begin to raise interest rates next year.
Meanwhile, the BoJ reacted to disappointing economic growth and inflation data
by ramping up its own QE programme. This sent USD/JPY falling sharply below
111, its lowest level since 2008.
It is a busy week ahead
with lots of key economic data, particularly in the US, along with central bank
meetings in the UK and euro area. In the US, October non-farm payrolls (Fri)
will as usual be seen as the key release of the month. The Fed’s growing
concern over labour market tightness potentially makes it even more important.
We expect another solid report with a 230K rise in payrolls and the
unemployment rate holding steady at 5.9%. Meanwhile, earnings are expected to tick
up modestly, to 2.1% y/y.
Other key US data
include the October manufacturing (Mon) and non-manufacturing ISM surveys
(Wed). Both are expected to fall modestly compared with September, but only to
levels that are consistent with continued above-trend economic growth in Q4.
September construction spending (Mon) and international trade (Fri) will be
watched for any signs of potential revisions to GDP. There are also several Fed
speakers. Minneapolis Fed President Kocherlakota comments will be particularly,
interesting as he dissented at the latest FOMC meeting, as will those of Dallas
Fed President Fisher because he voted with the majority after dissenting in
September. However, Fed Chair Yellen’s address on Friday will be most keenly
awaited. Judging by its title this speech could make some important points
about monetary policy.
of the coming week’s major central bank meetings are expected to
result in a policy change. The ‘flash’ October inflation estimate for the euro
area rose modestly to 0.4% from 0.3% in September, although the ‘core’ rate
moved down. Inflation is clearly still well below target but the ECB seems
unlikely to announce further measures for now. Instead, we expect ECB President
Draghi tol emphasise that they are monitoring the impact of previously
announced measures. Amongst the coming week’s data German industrial production
for September (Fri) will be of particular interest following the large fall In
August. We expect a sizeable 2.3% rebound, led by car production. This may help
to alleviate some of the concern that German growth is faltering.
In the UK,
the MPC (Thurs) is not expected to make any change to policy. With various MPC
members having indicated that they have become more dovish in the wake of
recent news, there is likely to be speculation over whether the two hawks will
move back to voting with the majority. With only the usual minimal statement
expected, there will be no immediate confirmation of this. Instead investors
will look to the following week’s Inflation Report to provide clarification of
the extent to which the consensus view is evolving. We will have to wait until
the minutes are published on the 19th to see whether the voting pattern has
changed. The coming week’s data will also provide further information on
current economic trends. Following the weakening in our own Business Barometer
for October, there will be considerable interest in whether the manufacturing
(Mon) and Services (Wed) PMIs also soften. If, as we expect, September
industrial production (Thurs)
softens, it will raise the risk of a downward revision to Q3 GDP.
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