employment data

With the White House and Republican leaders agreeing a deal on the debt ceiling at the weekend markets are now obsessing about whether the deal will get the necessary votes to pass into law, as partisan interests line up to criticise the deal.   With the deadline for a deal now said to be next Monday, 5th June a vote will need to go forward by the end of the week, with ratings agencies already sharpening their pencils on downgrades for the US credit rating. European markets sank sharply yesterday along with bond yields, as markets started to fret about a recession, while oil prices sank 4% over demand concerns. US markets also struggled for gains although the Nasdaq 100 has continued to outperform as a small cohort of tech stocks contrive to keep US markets afloat. As we look towards today's European open and the end of the month, we look set for further declines after Asia markets slid on the back of another set of weak China PMIs for May. We'll also be getting another look at how things are looking with respect to economic conditions in Europe, as well as an insight into some key inflation numbers, although core prices will be missing from this snapshot. French Q1 GDP is expected to be confirmed at 0.2% while headline CPI inflation for May is expected to slow from 6.9% to 6.4%. Italian Q1 GDP is also expected to be confirmed at 0.5, and headline CPI for May is expected to slow from 8.7% to 7.5%. We finish up with the flash CPI inflation numbers from Germany, which is also expected to see a slowdown in headline from 7.6% to 6.7% in May. While this is expected to offer further encouragement that headline inflation in Europe is slowing, that isn't the problem that is causing investors sleepless nights. It's the level of core inflation and for that we'll have to wait until tomorrow and EU core CPI numbers for May, which aren't expected to show much sign of slowing.   We'll also get another insight into the US jobs markets and the number of vacancies in April, which is expected to fall from 9.59m in March to 9.4m. While a sizeable drop from the levels we were seeing at the end of last year of 11m, the number of vacancies is still over 2m above the levels 2 years ago, and over 3m above the levels they were pre-pandemic. The size of this number suggests that the labour market still has some way to go before we can expect to see a meaningful rise in the unemployment rate off its current low levels of 3.4%. EUR/USD – slipped to the 1.0673 area before rebounding with the 1.0610 area the next key support. We need to see a rebound above 1.0820 to stabilise.   GBP/USD – rebounded from the 1.2300 area with further support at the April lows at 1.2270. Pushed back to the 1.2450 area and the 50-day SMA, before slipping back. A move through 1.2460 is needed to open up the 1.2520 area.   EUR/GBP – slid to a 5-month low yesterday at 0.8628 just above the next support at 0.8620. A move below 0.8620 opens up the December 2022 lows at 0.8558. Main resistance remains at the 0.8720 area.   USD/JPY – ran into some selling pressure at 140.90 yesterday, slipping back to the 139.60 area which is a key support area. A break below 139.50 could see a return to the 137.00 area, thus delaying a potential move towards 142.50 which is the 61.8% retracement of the down move from the recent highs at 151.95 and lows at 127.20.   FTSE100 is expected to open 22 points lower at 7,500   DAX is expected to open 64 points lower at 15,845   CAC40 is expected to open 34 points lower at 7,175

FXMAG.COM: Could you please comment on the US NFP? On Friday, the US will publish the employment data for May 2023. The average forecast suggests NFP growth by 180 thousand after rising to 253 thousand earlier.This is not a confident expectation. After a winter during which the US employment market added over 200 thousand new jobs per month, these statistics look modest. However, in this case, high digits might imply a threat to the US economy. If the Federal Reserve System sees that companies continue to compete for high-skilled workers, it might continue with its tough monetary policy.Strong employment market data will encourage further interest rate hikes to prevent inflation from rising.The situation turns out paradoxical. Good employment reports are no longer seen positively because they could be the basis for a further rise in crediting costs.Data that differs from forecasts will cause increased volatility in the US stock market.

France: consumption plunges while inflation moderates The second quarter got off to a poor start in France, with household consumption falling for the third consecutive month in April, and the outlook has been revised downwards. Against a backdrop of falling demand, inflationary pressures are moderating more quickly than expected.   Consumption continues to plummet In April, for the third consecutive month, consumer spending on goods fell. This time, the fall was 1% over the month, following a 0.8% fall in March. Household consumption of goods is now 4.3% lower than a year ago and 6.3% below its pre-pandemic level. The fall is due to lower energy consumption (-1.9% over one month) and a further fall in food consumption. Food consumption is now 11% below its pandemic level.   The magnitude of the fall shows the significant impact of the inflationary context and the fall in purchasing power, which has led households to significantly alter their consumption habits.   These figures were eagerly awaited, as they are the first real activity data available for the second quarter. And we can now say that the second quarter got off to a poor start. It is clear that the French economy is slowing sharply. It is unlikely that consumption will make a positive contribution to GDP growth in the second quarter, especially as the slowdown is beginning to have an impact on the labour market, as suggested by the employment climate data published by INSEE last week.   The prospect of a recovery later in the year seems to be fading. This has led us to revise our growth outlook slightly downwards. We are now expecting GDP growth of 0.6% in 2023 and 0.7% in 2024, with the risks still tilted to the downside. Although France escaped recession last winter, today's indicators are a reminder that a recession in the coming months cannot be ruled out.   Strong moderation in inflationary pressures Against this backdrop of falling demand, inflationary pressures are moderating. As expected, the pace of consumer price inflation eased in France in May. Inflation stood at 5.1%, down from 5.9% in April, while the harmonised index, which is important for the ECB, reached 6% in May, compared to 6.9% in April. The good news is that the fall in inflation is now visible in all consumer categories. Energy inflation fell sharply to 2% year-on-year in May.   Unlike in other European countries, it remains positive, however, as the rise in household energy bills did only take place at the start of 2023, rather than in 2022, as a result of the "tariff shield" introduced by the government last year. Food inflation remains very high but is starting to fall, to 14.1% in May from 15% in April.   At 4.1% year-on-year, compared with 4.6% in April, growth in the prices of manufactured goods is also moderating, as is that of services, which stood at 3% compared with 3.2% in April. These last two developments are very good news, as they signal that the inflation peak is behind us, but also that inflation is likely to fall rapidly over the coming months. Indeed, the signs of moderation in inflationary pressures are mounting.   For example, tensions in supply chains have disappeared and the growth in industrial producer prices, which gives an indication of changes in production costs for the manufacturing sector, slowed sharply to 5% year-on-year in April (compared with 9.5% in March). Over one month, producer prices fell sharply, by 4.1%, after +1.2% in the previous month. This indicates that growth in the prices of manufactured goods is set to slow markedly over the coming months.   Furthermore, business forecasts for selling prices fell sharply in May, particularly in the industrial and construction sectors, but also in services. Inflation in services should therefore continue to weaken over the coming months.   Finally, given the fall in agricultural commodity prices on international markets and the weakness of demand, food inflation should continue to fall gradually, and more rapidly once the impact of the price agreement between food producers and big retailers has been absorbed, i.e. during the summer. Ultimately, inflation is likely to fall over the coming months, helped by weak demand. We are expecting inflation to average 4.7% over the year (5.7% for harmonised inflation).

Order a steeper curve, get wider spreads Her main point however, if correct, doesn’t necessarily scream curve flattening. In a nutshell, the new central banker pointed to the risk of a higher R* post-Covid, suggesting the assumption that inflation and rates will eventually fall to their pre-pandemic range may be misguided. Two interpretations ensue. In the short term, the comments suggest the BoE will err on the hawkish side rather than rely on mean-reverting models to forecast a fall in inflation. The longer-term implication is that a deeply inverted curve, premised on a relatively quick reversal of the current hikes, isn’t justified.   Given central banks’ track record in forecasting inflation, we do not blame markets for focusing on the near-term implications. We’ll hear from Joachim Nagel and Yannis Stournaras today, respectively ECB hawk and dove. It is fair to say, also in relation to the inverted curve, that hawks have won the argument. Recent comments suggest hawks are now succumbing to the temptation to accelerate Quantitative Tightening (QT) in order, perhaps, to transmit higher rates to the back end of the curve. The US and UK experience with QT, albeit different in some respects, suggest this is a tall order. Our view is that such comments would more likely affect risk premia across markets, from currently moderate levels.   Today's events and market view US markets are closed for Independence Day today so the responsibility of feeding market-moving developments will fall squarely on Europe’s shoulders. Unfortunately, the only data scheduled after the European open is Spanish employment. Bond supply will be lively on the other hand. The UK will sell £2bn of 30Y green gilt via auction. Austria will also be active in long-end primary markets, with 10Y and 30Y auctions.  Germany is scheduled to sell 10Y inflation-linked debt. Joachim Nagel and Yannis Stournaras, sitting at opposite ends of the ECB’s hawk-dove spectrum, are the two central bankers listed for today. Markets have been more sympathetic to the hawkish argument of late but the Reserve Bank of Australia's decision to keep rates unchanged overnight shows tighter policy could also be achieved through a much slower hiking pace.

Yesterday, the euro showed a range of 60 points, closing the day at the opening level. The upper shadow tested the 1.0930 level, and this morning the price is headed towards this mark again, not giving up hope of reaching the upper band of the green descending price channel around 1.0990.       This is possible if the euro follows the stock market and employment data turn out worse than expected. For now, the price needs to consolidate above 1.0930.   Surpassing yesterday's low at 1.0871 will be a signal for a decline. On the 4-hour chart, the price could not consolidate below the balance indicator line and returned to the 1.0910/30 range. Here, it can linger for a while and try to overcome the MACD line around 1.0952.   The Marlin oscillator in the positive area is ready to join the growth at any moment.     Given that we accept the bearish scenario for the euro as the main plan, the price may not overcome the MACD line and return below the range. Like yesterday, uncertainty persists in the short-term perspective.    

EUR/USD As a result of Friday, the euro grew by 76 points after reacting to moderately positive US employment data. The unemployment rate slipped to 3.6% from 3.7% in May, although Non-Farms showed that the US economy added 209,000 jobs in June 2023, following a downwardly revised 306,000 in May, and below market forecasts of 225,000. This was reflected to some extent in the broad unemployment index – it rose from 6.7% to 6.9%. The overall labor force participation rate was unchanged for the fourth consecutive month at 62.6%, and there is room for growth to around 62.8-62.9%, where this share of the active population was quite stable in 2015/19. Therefore, the labor market is not yet saturated, even the average hourly earnings for all employees rose by 0.4% in June.   If we consider Friday's data in conjunction with Thursday's ADP data, the picture seems favorable for dollar growth. In fact, after a little hesitation with the release of data, the dollar strengthened, but as on Thursday, it was speculatively bought out. The trading volume was less compared to Thursday. And this could mean that the resistance of dollar buyers has been broken, or the bulls themselves are close to completing such a two-day speculative operation. In the first case, the euro's growth will extend at least to 1.1028 (and then the price will diverge from the oscillator on the daily chart), or higher, to 1.1085, or, in the second case, the euro will still grow a little for technical work out of the upper band of the price channel to 1.0980 and will turn to depreciation in the medium-term.     Whatever the case may be, buying the EUR/USD pair right now is risky, we are still waiting for the euro to turn to a 4-5 figure drop, we just have to wait for this turn to form. On the four-hour chart, the price is rising above the balance and MACD indicator lines, the Marlin oscillator is in a position to grow, we have an uptrend in the short-term.  

Australian inflation falls to 4.9% US GDP expected to rise to 2.4% The Australian dollar has edged lower on Wednesday after sharp gains a day earlier. In the European session, AUD/USD is trading at 0.6473, down 0.10% on the day.   Australia’s inflation slips to 4.9% There was good news on the inflation front as July CPI fell to 4.9% y/y, down from 5.4% in June and below the consensus estimate of 5.2%. Inflation has now fallen to its lowest level since February 2022. Core inflation, which has been stickier than headline inflation, gained 5.8% in July, down from 6.1% in June. The markets are widely expecting the Reserve Bank of Australia to hold rates at the September 5th meeting and the drop in the headline and core inflation readings could well cement a pause. Inflation remains well above the RBA’s 2% target, but it is an encouraging sign that inflation continues to move in the right direction.   Soft US numbers send Aussie sharply higher The Australian dollar sparkled on Wednesday, climbing 0.80% and hitting a one-week high. The uptick was more about US dollar weakness than Aussie strength, as the US posted softer-than-expected consumer confidence and employment data on Wednesday. US consumer confidence took a hit as the Conference Board Consumer Confidence Index fell to 106.1 in July. This was a sharp drop from the August reading of 116.0 and marked a two-year low. JOLTS Job Openings fell to 8.82 million in July, down from 9.16 million in June and well off the estimate of 9.46 million. This was the sixth decline in the past seven months, another sign that the strong US labour market is showing cracks.

Metals – Fresh stimulus from China for the property sector Base metals prices extended this week’s gains this morning as healthy economic data and fresh stimulus measures in China buoyed sentiment. Caixin manufacturing PMI in China increased to 51 in August compared to 49.2 in July; the market was expecting the PMI to remain around 49. This is the strongest manufacturing PMI number since February. Meanwhile, Beijing has announced fresh stimulus measures aimed at supporting the property sector. The People’s Bank of China has lowered the minimum downpayment for mortgages for both first-time buyers (from 30% to 20%) and second-time buyers (from 40% to 30%) while the minimum interest premium charged over the Loan Prime Rate has also been reduced. China is also allowing customers and banks to renegotiate interest rates on existing housing loans which could reduce interest expenses for borrowers. LME continues to witness an inflow of copper into exchange warehouses. LME copper stocks increased by another 3,675 tonnes yesterday, taking the total inventory to a year-to-date high of 102.9kt. Meanwhile, cancelled warrants for copper remain near zero levels, hinting that there may not be any inventory withdrawals from LME in the short term and total stocks could continue to climb over the coming weeks. Europe witnessed an inflow of 2,700 tonnes yesterday whilst 950 tonnes were added in the Americas and 25 tonnes in Asia. Gold prices have held steady at around US$1,940/oz as the latest economic data from the US eased some pressure on the Federal Reserve to continue with rate hikes. The core PCE (Personal Consumption Expenditure) deflator in the US increased at a flat 0.2% month-on-month in July, the second consecutive month at 0.2% which should help the Fed in getting inflation back on track to around 2%. On the other hand, data from Europe was not that supportive with core CPI falling gradually from 5.5% to 5.3% and CPI estimates remaining flat at 5.3%. The focus is now turning to today’s US non-farm jobs report which is expected to show a smaller rise in payrolls in August.

CAD: Jobs prints are volatile, but BoC should be done anyway Canadian jobs figures for the month of August will be released today. The headline employment number has been quite volatile, with the past four months having seen two very strong prints (April and June) and two sub-zero ones (May and July). However, the unemployment rate has ticked up in each of the past four months, from 5.0 in April to the current 5.5%. The consensus numbers are 17.5k and 5.6% for today. Outside of the initial reaction for CAD, the implications of today’s figures beyond the very near term should not be very significant, barring a very strong read. As discussed in our Bank of Canada meeting review note, we think rates have peaked in Canada, in particular following the dismal 2Q GDP reading (-0.2% quarterly, annualised). USD/CAD is expensive, trading around 2.3% above its near-term fair value, according to our calculations, but any decisive turn lower remains tied to a turn in US activity data rather than domestic inputs on the Canadian side. 

GBP: Wage data not as hawkish as it looks The UK has just released wage and employment data. On the face of it, an as-expected 7.8% three-month/year-on-year rise in ex-bonus weekly earnings in July makes the case for the Bank of England to remain hawkish. But here is what our UK economist, James Smith, thinks of the data.    The UK wage numbers are actually more dovish than they look at first glance. At the headline level, regular pay growth stayed at 7.8% on a 3M/YoY basis- - no surprises there. But drill down and if you strip out the public sector, private sector pay barely increased in level terms between June and July. And if we look at the altnerative wage measure based on payrolls, that actually fell in level terms for the second consecutive month. It is only one data point, admittedly, and several upside surprises preceded it. But with unemployment notching higher, the labour market data doesn't scream a need to keep hiking rates much further. We think it right not to chase EUR/GBP too much lower on this data (it is currently reversing from a brief dip to 0.8570) and what could prove a mildly hawkish ECB on Thursday warns of EUR/GBP breaking above 0.8600 later this week.

By Michael Hewson (Chief Market Analyst at CMC Markets UK) US non-farm payrolls (Nov) – 08/12 – last month's October jobs report was the first one this year when the headline number came in below market expectations, though not by enough to raise concerns over the resilience of the US economy. Unlike September, when US jobs surged by 297k, jobs growth slowed in October to 150k, while the unemployment rate ticked higher to 3.9%, in a sign that the US economy is now starting to slow in a manner that will please the US central bank. Combined with a similarly weak ADP report the same week, where jobs growth slowed to 113k, and a softer ISM services survey yields have slipped back significantly from their October peaks, as well as being below the levels they were a month ago in a sign that the market thinks that rate hikes are done and has now moved on to when to expect rate cuts. This is the next challenge for the US central bank who will be keen to continue to push the higher for longer rates mantra. It's also worth noting that JOLTS job openings are still at elevated levels of 9.55m, and weekly jobless claims continue to trend at around 210k which means the Fed still has plenty of leeway to push back on current market pricing on rate cuts. Expectations are for 200k jobs to be added in November; however, it should also be remembered that a lot of additional hiring takes place in the weeks leading up to Thanksgiving and the Christmas period so we're unlikely to see any evidence of cracking in the US labour market this side of 2024.          Services PMIs (Nov) – 05/12 –while manufacturing activity in Europe appears to be bottoming out, the same can't be said for the services sector which on the basis of recent inflation data is experiencing sticky levels of inflation, which is prompting a continued hawkish narrative from the ECB despite rising evidence that the bloc is already in contraction and possible recession as well. Recent data from the French economy showed economic activity contracted in Q3 and there has been little evidence of an improvement in Q4. The recent flash PMIs showed that services activity remained stuck in the low 45's, although economic activity does appear to be improving, edging higher to 48.7. The UK economy appears to be more resilient where was saw a recovery into expansion territory in the recent flash numbers to 50.5. The main concern is that the resilience shown by the likes of Spain and Italy as their tourism season winds down appears to have gone after Italy fell sharply in October to 47.7, while Spain was steady at 51.1.  

The upcoming week promises to be much more interesting than the last two. The start of the month means that the United States will publish data on the labor market, unemployment, and wages. As always, these reports will come out on the first Friday of the month. So what can we say about them now, and what should we expect?     In order to understand the dynamics of payrolls, let's look at their values for the past two years. From January 2022 to January 2023, the average payroll value was 350,000. This is a very high value, surpassed only during the post-COVID economic recovery. From January 2023, the indicator sharply dropped, and throughout this year, its average value has been just over 200,000. Three out of the last five months closed with values below 200,000. The previous month saw 150,000. The forecast for November is 180,000. As we can see, in the long term, the U.S. labor market is contracting, so we might see an unsatisfactory value at the end of November. However, payrolls tend to "jump." If the previous month was weak, the next one could be strong. The unemployment rate is currently causing the least concern. Despite rising from 3.4% to 3.9% over the last six months, experts still consider this a "low" value. It may continue to increase as the trend is heading downwards. Still, the Federal Reserve has not raised interest rates for several meetings in a row, which could slow down the rise in unemployment. Wages – the least important indicator. In annual terms, the growth rate of wages is decreasing, standing at 4.1% in October. The downtrend signals a slowdown in inflation, which is more of a bad thing than a good one for the U.S. currency. In the end, the first two reports are stronger, but they might present a pleasant surprise on Friday. Wages are a secondary report; the market will focus on unemployment and Nonfarm Payrolls. Based on the analysis, I conclude that a bearish wave pattern is still being formed. The pair has reached the targets around the 1.0463 mark, and the fact that the pair has yet to breach this level indicates that the market is ready to build a corrective wave. It seems that the market has completed the formation of wave 2 or b, so in the near future I expect an impulsive descending wave 3 or c with a significant decline in the instrument. I still recommend selling with targets below the low of wave 1 or a. But be cautious with short positions, as wave 2 or b may take a more extended form. A successful attempt to break the 1.0851 level could signal a decline in the instrument.

Base effects to deliver a further big inflation drop for December's numbers To just creep under the RBA’s upper target band, the month-on-month change needs to average 0.24%. So, roughly speaking, for every monthly increase of 0.2%, you can have just under one of 0.3%. Any more than this, then over twelve months, you are going to overshoot the RBA’s target. In the last six months, there have been only two occasions when CPI has risen less than 0.3%. That was July’s 0.25% increase and, more recently, the -0.33% decrease in October – driven by a one-off drop in gasoline prices and some volatility in holiday costs. The good news is that for at least one more month, base effects (the impact of last year’s price movements on the year-on-year comparison) mean that the inflation rate could decline further in the near term.   Last December, Australia’s CPI index experienced a huge spike of 1.5% MoM, briefly taking the inflation rate to 8.4% YoY. This was caused by an unlikely coincidence of factors which we don’t expect to be repeated. Firstly, cold weather and flooding wiped out many seasonal crops, pushing up food prices. As a result of the flooding, some coal mines were inoperative, which took some coal-fired electricity generation offline. Because too much natural gas had been exported, there was not enough to offset this loss with gas-fired plants. Energy prices spiked. All of this, coupled with a post-lockdown surge in demand for travel and hotels in the prime holiday season, resulted in a 27% MoM increase in holiday prices and an 11% increase in recreation prices overall.      Monthly CPI progression and base effects   Base effects give way to run-rates It doesn’t look as if the weather is as unseasonably cold or wet as it was last year, although there has been flooding in Queensland. Hopefully, last year's energy crisis will not be repeated this December. Recreation prices reflecting travel and hotel costs will likely move higher, as they do most Decembers, but pre-Covid, monthly recreation prices typically rose between 5-7% MoM, not the 11.0% MoM increase recorded last year. So, on the assumption that more normal increases occur this year, then we should see the CPI index increase by no more than 1% in December, and possibly much less, meaning that the rate of inflation will fall from 4.3% to 3.7% for a 1% outcome, to maybe as low as 3.3% on a 0.6% MoM outcome. And that really would put the RBA’s inflation target into play. But the good news may then be interrupted for a while because last year’s price spikes were followed by abnormally large unwinding. But with less of a surge in prices at the end of 2023, the unwinding in early 2024 is also likely to be commensurately less. While last year’s January print was -0.3%MoM, this year may be a more modest -0.1 to +0.1% outcome, and the February 2023 0.2% MoM outcome could be closer to 0.3-0.4. If so, then that would take the inflation rate back up by 0.3-0.6pp, returning to around 4% YoY.    After that, there are no particularly egregious base effects to worry about until May, when the 2023 0.4% MoM decrease could result in a further upward lurch, reversing whatever decline stems from the December comparison. What will determine where inflation ends up by the end of the year will be much more driven by the run-rate of monthly outcomes than base effects. As we noted before, right now, this is not looking convincingly low enough to bring inflation in on target, at least not by the end of 2024.   The macroeconomy is still looking pretty good For this to happen, it would be more encouraging if the macroeconomy were slowing. Certainly, the GDP figures have been coming down, but these don’t tell the whole story. Employment data remains fairly robust. Most months, the increase in the labour force is greater than the rise in unemployment, which is keeping a lid on the unemployment rate, which at 3.9% is still fairly low. Retail sales have dropped back to about 2%YoY but look pretty stable and are certainly not screaming recession or household distress. And with house prices still rising, the single largest source of household wealth is looking strong     Market pricing just looks wrong In terms of market pricing, futures markets are pricing in a 50% chance of a cut in May, and by August, the first hike is fully priced in, with a further 25bp cut fully priced in by December. This looks totally wrong to us. For one thing, and unlike the Fed, the RBA has been quite tentative about its increase in the cash rate. At 4.35%, the cash rate is probably a bit restrictive, but not much. The real rate (ex-actual inflation) is about zero. A properly restrictive rate would be higher. On the same basis, the Fed’s real policy rate is more than +200bp. Consequently, even the arguments for some finessing of the policy rate to a more neutral setting aren’t terribly convincing. At least not until and unless inflation drops much more than it will have likely done by May. The possibility for a May cut doesn’t even coincide with the very narrow window of low inflation that will appear when the December inflation data are released at the very end of January and just ahead of the RBA’s February meeting.   Market pricing Implied cash rates   It's easier to make a case for hikes In contrast, we have only one rate cut pencilled in for 4Q24, and even that feels a bit speculative currently, as there is a good chance that inflation won’t have reached the RBA’s target by then. That's especially true should the current tensions in the Red Sea spill over into higher prices of energy and, indeed, all goods that are normally routed through this stretch of water. It is probably easier to make a case for further RBA rate hikes because if monthly inflation averages 0.3% over the second half of the year, not the 0.2% we have optimistically assumed, then inflation will still be around 4% by the end of 2024.