After ECB surprise, German factory orders and Bundesbank views are in focus
- US monthly jobs report should give a thumbs-up for a rate hike later this month
- The US trade balance will attract only limited interest for now
Today’s main event is undoubtedly the monthly jobs report from the US. After the yesterday’s less-than-expected delivery from the European Central Bank, investors are probably still coming to grips with big price changes and what the ECB plans to do next.
ECB president Mario Draghi will give a speech at 1645 GMT at the members’ meeting of the Economic Club of New York. Investors are desperate to understand the ECB’s logic, and might be tempted to see forward guidance where there is none – so watch out for any headlines.
After years of solid jobs growth and despite scares when the monthly rise disappointed, the path is clear – the Fed has good enough numbers to hike. Photo: iStock
German factory orders, for October (0900 GMT)
Germany’s notoriously volatile factory orders are expected to have increased by 1.5%, after declining 1.7% in September – a weak performance, as that was the third straight month of falling orders. That puts the expected small increase into perspective, as it would only recoup part of one month’s fall. However, Markit’s PMI showed improving moods for November after October’s weak numbers, so investors are probably well-braced for the weakness in factory orders.
Of all the Eurozone countries, Germany is considered to be most critical of easier monetary or fiscal policy. As the German economy seems to be picking up from its temporary rout, it could be that the ECB under Draghi missed its opportunity to ease monetary policy, and further easing in 2016 could face renewed resistance. The German central bank, the Bundesbank, releases its semi-annual economic forecasts today (at 0930 GMT), and could be worth a look for the ECB-watchers.
US October Trade balance (1330 GMT)
The trade deficit is expected to have narrowed a bit to $40.5 billion from the last month’s $40.81 bn. This is close to the recent average, and after some scary headlines only a couple of months ago about the “surging trade deficit” as China slows and the dollar soars, things have settled down.
The trade balance has little momentum on economic policy, but it does say something about how the businesses are coping with the more expensive dollar. So far, there is no harm, so expect little reaction to the deficit for now.
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US November Employment report (1330 GMT)
The consensus forecast expects the non-farm monthly payrolls to have increased by 200,000 – a good, solid number after the October’s surprisingly large increase of 271,000.
The unemployment rate is expected to have remained unchanged at 5%. The jobs report is the last one before the Federal Reserve’s opportunity to hike rates on December 16.
Chart source: Saxo Bank
Chart source: Saxo Bank
Yesterday the Federal Open Market Committee chair Janet Yellen gave a testimony that Reuters called “generally upbeat, spelling out how the economy has largely met the criteria the Fed has set for its first rate hike”. So we are go for launch.
After years of steady and solid jobs growth and declining unemployment rate and despite the occasional scares when the monthly jobs increase has fallen toward the lower end of its range, the path seems clear – the Fed has good enough numbers to hike.
There is almost no chance for the numbers to be so bad that the Fed would be inclined to postpone the rate hike to 2016. Especially now that the US dollar lost some ground on the ECB’s lame announcements, the jobs report will have no effect on the Fed’s upcoming hike.
Maybe attention is already shifting to 2016 and how quickly the Fed will raise rates. Currently it is believed that the Fed will move very slowly. After being constrained for years by the zero lower bound, the Fed does not want to find itself in a situation where new unconventional policy measures would be the only available tool. So investor focus might begin to shift from the payrolls to wages and the labour force participation rate.
Hourly compensation for non-farm workers in the third quarter rose 3.4% from year ago and the October’s report showed a 2.5% increase in average hourly earnings from year ago. The participation rate at 62.4% is at post-crisis lows while the employment-to-population ratio has increased only marginally since the financial crisis. There simply isn’t much threat of inflation, and US dollar bulls and stock market bears might be in for a disappointment as the Fed is increasingly seen to move at snail’s pace in 2016.