01/12/2015 THE BIG PICTURE The devil is in the details US nonfarm payrolls soared by 252k in December, more than expected, and the previous month was revised up to an incredible 353k (October was revised up, too). This was the 11th straight month above 200k. Unemployment fell more than expected and the average workweek held steady, too. Sounds great, no? Instead, the market focused on the 0.2% mom drop in average wages (November was revised down too). There was a lot of uncertainty about how to interpret the figures but at the end of the day, Fed funds rate expectations were down sharply. Investors apparently thought that the sluggish growth in average earnings coupled with falling oil prices would probably dampen any inflationary pressures and as a result they pushed out the time when they expect the Fed to start hiking rates. Personally, I think the earnings figures may be an aberration as they don’t correlate with everything else that is going on in the labor market. I’m not sure that this will delay the Fed notably. This was the view of Atlanta Fed President Lockhart, who called the decline in average hourly earnings “potentially noise” and said it was inconsistent with other data on compensation. He said the strong rise in employment “confirms my sense of how the economy is progressing,” which would mean it’s still on track for a rate hike mid-year. Richmond Fed President Lacker said that the fall in oil prices was complicating the picture, but he still expects inflation to move back towards the Fed’s 2% target, which means he’s still envisioning raising rates. So as far as we know, the figures didn’t change the view of anyone on the Fed and so don’t change the outlook for the dollar. Of course if wages keep falling, then they may delay a hike – they all insist that there is no set schedule and everything depends on the data. But it would be odd for so many more people to be hired without wages rising. In general the dollar is lower this morning, rising only against NOK, SEK and CAD. The G10 currency that performed the best was AUD even though home loans fell in November rather than rising as expected, although the ANZ job advertisements index rose more in December than it had in November. In Canada, the unemployment rate remained unchanged at 6.6% in December, while the labor market lost 4.3k jobs. December was the second consecutive month for a drop in employment, consistent with the Bank of Canada’s concerns about significant slack in the labor market. Given falling oil prices and the slack in the job market, I would expect CAD to remain vulnerable. Crude fell sharply, with the number of rigs drilling for oil in the US falling by 61 this week, the most in 24 years. On the other hand, estimates of Saudi Arabian production for December have been raised, adding to the glut of oil now on the market. It appears that the near-term outlook for oil is still bearish, but the long-term outlook – starting next year, perhaps – is more bullish. Today’s schedule: During the European day, we have no major events or releases scheduled. In the US, we get the labor market conditions index for December. This is a monthly index that draws on a range of data to give a better sense of the employment conditions in a single measure. In November, the index came 2.9, so a reading above that, following the strong nonfarm payrolls on Friday, should indicate an improving labor market. Atlanta Fed President Dennis Lockart speaks again. It will be interesting to see if a weekend of reading changes his view from what it was when he was interviewed on Friday. As for the rest of the week, on Tuesday, Japan’s current account surplus is expected to fall a bit, which could prove JPY negative. Sweden’s CPI is expected to show that the country fell deeper into deflation. The minutes of the Riksbank’s December meeting confirmed that unconventional measures are being prepared and could be used if inflation fails to pick up. Given the further decline in consumer prices we could see action at the February meeting. The UK CPI is expected to fall below 1% driven mainly by lower energy prices. The decline confirms the warning in the BoE’s November inflation report that inflation is likely to fall below 1% within 6 months. This could push further back the expectations for tightening and add to the negative sentiment towards GBP. On Wednesday, the Fed releases the Beige book two weeks before its Jan. 27-28 policy meeting. Retail sales for December are also coming out. On Thursday, Australia’s unemployment rate for December is expected to remain unchanged, while employment is forecast to grow by less than it did the previous month. This could prove AUD-negative. From the US, we get the Empire State manufacturing survey and the Philadelphia Fed business activity index, both for January. Finally on Friday, Eurozone’s final CPI for December is expected to confirm the preliminary reading that showed the bloc in deflation. German final December CPI is also coming out. The US CPI for December is also coming out and the forecast is for the rate to decline below 1%, mainly because of the falling energy prices.
Posted on: Mon, 12 Jan 2015 08:03:56 +0000
Trending Topics
Recently Viewed Topics
© 2015