Market movers today
In the euro area, the employment figure for Q2 is due for release on Wednesday. We estimate the improvement in the labour market continued in Q2, which has been indicated by strong PMI employment indicators throughout the quarter. Specifically, we expect employment growth of 0.4% q/q in Q2.
Today also brings data on euro area industrial production in July. We expect a small rebound in the euro area but based on the unchanged German figure in July, it should be modest. We expect the euro area figure to report 0.2% monthly growth.
In the UK, the labour market report for July is due. We expect the annual growth rate in average weekly earnings excluding bonuses (3 month average) was unchanged at 2.1% y/y but see a risk of a further decline in the unemployment rate to 4.3% from 4.4%.
Selected market news
Asian shares reached a 10-year high this morning, while the rise in USD/JPY helped boost Japanese shares. Similar record highs were reached on Wall Street yesterday, as investor concerns faded about the impact of Hurricane Irma as well as North Korean tensions, despite President Trump’s demands yesterday to toughen sanctions further.
In the US, Treasury Secretary Steven Mnuchin expressed doubt on Trump’s goal of cutting the corporate tax rate to 15%, citing budget issues, despite the recent deal reached on the postponement of the debt limit (see Flash Comment US: Debt limit fight postponed amid increased Fed uncertainty, 7 September). The administration is currently trying to build public support for the tax reforms, also with the Democrats. Mnuchin said he hoped that a tax plan could be enacted this year, but we still think that Republicans’ will struggle to agree on tax reforms internally, as the very conservative Republicans want big tax cuts financed by big fiscal spending cuts, which more moderate Republicans cannot support. Yesterday, we also got news that Trump plans to visit China in November. We do not yet know what the topics for the visit will be, but markets will focus on trade issues and North Korea.
After Monday’s inflation disappointment in Norway, yesterday’s Q3 Regional Network Survey was also weaker than expected, with the aggregated output index falling to 1.11 from 1.29. With low inflation, strong NOK versus Norges Bank’s forecast, a cooling housing market and lower global rates, Norges Bank could easily extend the on-hold stance at its meeting next week in our view.
In France, around 223,000 protesters marched yesterday against the government’s new labour reform unveiled on 31 August. The reform included a cap on payouts for unfair dismissals and greater flexibility for companies to negotiate pay and hours. Labour unions have scuppered previous efforts to weaken France’s labour code, but this time there was comfort for Macron as two other unions, including the largest CFDT, declined to join the protests. Macron is determined to move on with his reforms despite a rapid decline in approval ratings (36% in August), with a reform of the unemployment benefit scheme in 2018 next on his agenda.
