Market movers today
Today’s main event is the US January jobs report. We estimate job growth was 160,000, still primarily driven by services. The annual growth rate in average hourly earnings rose to 2.9% y/y in December, but is likely to fall back to 2.7% y/y in January despite a monthly increase of 0.25% m/m. We estimate the unemployment rate was unchanged at 4.7%, but see a risk that it might increase to 4.8% if the labour force participation rate moves slightly higher.
The ISM non-manufacturing index for January is also due for release. It likely stayed around the December level of 56.6, as the Markit PMI services index signalled solid growth in the service sector in January with an increase to 55.1.
In the Euro area, retail sales figures for December are released. We expect a strong figure with a 0.7% monthly increase, following the 0.4% monthly decline in November. Euro area consumer confidence has been rising from August through December and other survey indicators have created high expectations for Q4 growth. Thus, we expect the retail sales figures to reflect strong growth in Q4.
Selected market news
Due to the uncertainty about President Trump’s fiscal, foreign and currency policies the market continues to be in two minds about the economic outlook. Despite fairly strong economic numbers released in the US this week and possibly a strong non-farm payroll number this afternoon, stock markets continued to trade sideways. The USD is regaining a little bit of ground ahead of the non-farm payrolls numbers this afternoon and offshore Chinese yuan and most other emerging-market Asian currencies were under pressure. Should the non-farm payrolls come in stronger than expected, notably with higher wage growth, investors would like to start to price in an earlier rate hike, possibly in May, which could add further strength to the USD and hurt emerging-market currencies.
There is increasing speculation that the Trump administration may impose new sanctions on Iran following the missile testing this week. This week Trump’s national security advisor Michael Flynn warned that the missile testing was ‘in defiance’ of the United Nation’s Security Council resolution passed after a nuclear deal in 2015 between Iran and major Western nations. A Bloomberg story this morning refer to plans of imposing the sanctions already today.
Furthermore, we got further indications about the economic priorities of the Trump administration yesterday. House speaker Paul Ryan indicated that the expected tax reform will first be taken up in ‘spring’ after dealing with the repeal and replacement of the Affordable Care Act. This is in line with our expectation that it will take time before Trump’s economic policy comes into action.