Market movers today
Today’s highlight is the US labour market report. We will look towards a 175K headline print. Also we expect unchanged yearly wage growth of 3.1% with risks skewed towards a slight drop to 3.0%. While this overall is slightly stronger than consensus expectations we would expect but a modest positive market impact if this proves right. The key thing for markets is that the report shows a continued tightening of the labour market, i.e. that job growth stays above roughly 100,000. A very weak print, which in our view is not in the cards, would on the other hand trigger a risk off move.
In Canada we also get the monthly labour market report, which is very important given last month’s disappointing reading, which fuelled rate cut speculations. Rates markets currently price in slightly less than a full rate cut from Bank of Canada in 2020 but this pricing is likely to be very sensitive to today’s report as we approach the 22 January rate decision.
In the Scandies , focus turns to Norwegian inflation data and Swedish production data .
Selected market news
A combination of a de-escalating Iran-US conflict, decent US data, trade war optimism and a Fed indicating no hikes are forthcoming has contributed to the rebound in global risk appetite over the last sessions , not least driven by the US. It has been quiet overnight in Asia and the direction in today’s session will much depend on the US non-farm payrolls.
Several prominent FOMC members were on the wire yesterday, including Vice chairman Clarida. Generally the message was that the US economy remains in a ‘good place ‘ and that markets should not expect a reversal of last year’s insurance rate cuts as inflation pressures remain low. On the other hand, the Fed is prepared to cut rates should the outlook deteriorate. This asymmetry is supportive for markets as it removed some tail risks.
Sentiment was also improved by the weekly US initial jobless claims figure falling to 214,000. Not only is this a five-week low but it confirms that the spike at the end of 2019 likely was noise, see chart . The release supports the encouraging signals from PMI employment sub-indices and ADP data. Also given that jobless claims is one of the indicators where labour market weakness is likely to show up early, it has bolstered market expectations that the US economy will remain supported by private consumption.
China has confirmed that top negotiator Vice Premier Liu He will lead a delegation going to Washington next week to sign the phase 1 deal of the US-China trade deal. This confirmation removes one source of uncertainty with respect to this long-awaited signing.
Yesterday Canada Prime Minister Trudeau stated in a press conference that intelligence ‘from multiple sources ‘ indicates that the UIA Boeing that crashed Wednesday morning in Iran was shot down by an Iranian surface-to-air missiles. Meanwhile, the missile attack ‘may well have been unintentional ‘ according to Trudeau. This message was later backed by UK and US officials. Iran has so far denied the claims and refused to deliver the black boxes to Boeing in the US amid the broader conflict and ongoing domestic crash probe.
