All eyes on US employment report as Fed becomes last man standing
For most of this year speculation has surrounded the timing of when either the US Federal Reserve or the Bank of England would raise interest rates.
This was notable due to the fact that pretty much everywhere else in the global economy interest rates were being reduced, or other policy easing measures were being implemented.
The Bank of Japan, European Central Bank and the People’s Bank of China have all eased policy this year in an attempt to stimulate their respective economies.
At the same time both the Federal Reserve and the Bank of England had gone to great pains to warn that an interest rate rise was probably just around the corner, with the Fed in particular being much more precise about the possible timing of such a move, while the Bank of England has been more vague, but with a potential timeline of early next year.
Yesterday’s Bank of England inflation report changed all of that, as the MPC downgraded both its inflation and growth forecasts, with its inflation forecast downgraded to below 1% until the back end of 2016.
What was most notable was the overall dovish nature of the report in stark contrast to US Fed chief Janet Yellen’s hawkish comments 24 hours earlier, begging the question as to what it is that the Federal Reserve is seeing that no-one else is, as the US central bank becomes the last man standing, with respect to the prospects of a policy tightening.
It was notable in yesterday’s inflation report that the Bank of England cited concerns about global factors, unlike the Fed’s recent statement where that particular reference was removed, while the strength of the pound was raised as a cause for concern, a factor that can only get worse if the ECB does embark on further easing measures next month.
On the data front the latest UK industrial and manufacturing production numbers for September are expected to point to a decline of 0.1% and an expansion of 0.6% respectively, while the latest trade balance is expected to show a deficit of £3bn.
In light of Fed Chief Janet Yellen’s comments earlier this week, attention now shifts towards today’s October non-farm payrolls report, as markets look for further clues as to whether the Fed will hike next month.
Judging by some of the recent US data it remains an incredibly close call due to the Fed’s self-imposed reluctance to row back from their insistence that a rate rise could still happen this year.
The latest Q2 and Q3 unit labour costs data pointed to a weak prices outlook with Q2 revised down to -1.8%, while Q3 saw a rise of 1.4%, well below expectations of a 2.5% rise.
Today’s jobs report is expected to see a rise of 180k, an increase from the previous two reports of 136k and 142k, but nonetheless would still mark a significant slowdown on the jobs growth seen in 2014, where we saw a gain of over 3.1m jobs. So far this year the total number of jobs added comes to less than 2m at 1.78m.
More importantly average earnings are expected to show a rise of 0.2% month on month, and 2.3% year on year, however if we come in lower than that it will muddy the waters further with respect to what the Fed might do next month, putting further pressure on their inflation mandate, as it diverges further from their employment mandate.
The unemployment rate is expected to stay unchanged at 5.1% and the participation rate at 62.4%, a 36 year low.
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