Friday November 6, 2015 - 17:35:46 GMT
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WEEK AHEAD ECONOMIC DATA ANALYSIS Friday 06 November 2015
FED STANDS ALONE
US labour market data reinforces our December Fed policy rate hike call
BoE growth and inflation downgrades push out expectation of MPC rate hike
Softer global growth poses downside risk to euro area Q3 GDP
Strong US labour market figures support December lift-off. Today’s October employment report, which showed much stronger-than-expected rises in non-farm payrolls and pay growth, alongside a further fall in the unemployment rate, has lent support to recent statements by Fed Chair Yellen, Vice-Chair Fischer and New York Fed President Dudley that a rise in the policy rate at the December FOMC meeting remains firmly on the table. Meanwhile, remarks from Governor Brainard, who had previously argued against an early hike in the absence of clear evidence that inflation was set to return to target, struck a more conciliatory tone. Next week will see several other FOMC members add their voices to the policy debate. Of particular interest will be the views of the Chicago and Boston Fed Presidents, Evans and Rosengren respectively, both of whom have previously argued against an imminent rate rise. Otherwise, it is a quiet week for US data with both October retail sales (Fri) and preliminary November University of Michigan consumer sentiment index (Fri) expected to support the robust domestic picture.
Bank of England adopts more dovish tone. In contrast to recent Fed pronouncements, the “Super Thursday” output from the MPC, in particular the November Inflation Report, struck a decidedly more dovish tone over the near term with downgrades to Bank staff projections for GDP growth and inflation over 2015 and 2016. To some extent this reflected softer-than-expected outturns for both during Q3. But the downside impacts of both a moderation in emerging market growth and the recent rise in sterling are also forecast to be stronger than previously thought. Nonetheless, the projected elimination of spare capacity over the next year and an inflation overshoot at the end of the two-year policy horizon suggest that the current market expectation that the first increase will not take place until early 2017 may be overdone. We now expect the first hike in August 2016.
UK labour market to confirm rebound from recent dip. After some softness in the spring, last month’s labour market release indicated a 140k rebound in employment in the quarter to August, the largest rise since February. At the same time the unemployment rate fell to 5.4%, its lowest level since June 2008, while pay growth continued its upward trend. Wednesday’s report is expected to show another robust employment print along with a 0.3pp jump in headline earnings growth to 3.2%. Meanwhile construction output in September (Fri) should rebound from August’s weather-related 4.3% plunge.
Euro area Q3 GDP under the spotlight. Worries about the pass-through from softer global growth underpinned President Draghi’s October 22 pronouncement that a further round of policy easing would be considered at the ECB’s December meeting, when updated staff inflation and growth forecasts will also be available. Consequently, Friday’s preliminary Q3 GDP growth figures will be scrutinised for signs of any moderation from the 0.4% q/q Q2 print.
Impacts of Chinese policy stimulus to show up in October releases. One of the key reasons for the shift towards a more hawkish FOMC stance has been the view that the downside risks to the US economy from weakening global growth may be less severe than previously thought. This more sanguine position reflects both monetary and fiscal policy loosening by the Chinese authorities since the summer, as well as some mildly upside news in survey and official data. Several releases next week will provide a firmer steer on near-term trends, including foreign trade (Sun), CPI (Tue), retail sales (Wed) and industrial production (Wed).
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