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Macroeconomics: The Day Ahead for 8 November

  • US labour data tops relatively busy schedule of data and events; digesting weak French and German Production, Indonesia Q3 GDP, also awaiting Canada jobs; BoE speakers in focus on busy day for central bank speakers
  • US labour data: strong Services ISM, boost to re-opening hiring as delta variant impact fades, education hiring impart some upside risks for Payrolls; Unemployment rate to drop again, labour participation rate to improve but remain lacklustre; unclear what “full employment” is
  • BoE communications mismanagement lurches from bad to worse
  • Charts/Table: UK Money Market Rates & BoE MPR chart on excess spending and labour reallocation

EVENTS PREVIEW

The US October labour report will be the focal point of a relatively busy end of week schedule of data and events, which has the overnight RBA Statement on Monetary Policy (aka SOMP), Indonesia Q3 GDP and German & French Industrial Production to digest, with Canada’s labour data also ahead. There is a busy schedule of central bank speakers, but it will be those from the BoE (Pill, Ramsden & Tenreyro) that garner more attention than ECB and Fed, as the BoE stumbles from one discombobulated policy message to another, shredding any last remnants of credibility that remained. To be sure, these are uncertain times, making policy decisions even more difficult, but failing to communicate what the key drivers of policy are at a given juncture, and where the risks lie in a very clear fashion is at best amateurish. Distilling all the mixed messaging that there has been from the BoE, it appear to boil down to this, they are concerned by slowing consumer demand, and unsure about how the labour market will play out (the attached chart from the MPR highlights the nub of the problem), and are assuming that energy price pressures and supply chain bottlenecks will dissipate as has been the case in the past. The latter is debatable, but Broadbent’s press conference observation that inflation hit 5.0% post-GFC and fell back is effectively to compare apples with pears, given the crass differences in the antecedents of the current inflation pressures in pretty much every context (particularly the fact that the current asset price bubble is central bank induced), which only serves to undermine the BoE’s credibility further. Markets are now discounting an initial 15 bps rate hike in February, though a December rate hike has by no means been priced out of the market, which underlines that markets are effectively demanding a higher risk premium on GBP rates. See also these interviews from yesterday: https://nam02.safelinks.protection.outlook.com/?url=https%3A%2F%2Fyoutu.be%2FYtKz__ebdsg&data=04%7C01%7CSimrat.Sounthe%40admisi.com%7C20e82c70c837433b6adb08d9a035f071%7C2f55bf3242d444b3a8c2930ac8b182b2%7C0%7C0%7C637716975812464567%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C1000&sdata=eC9sOtVcaQENFJui7M8sbYdrurk5GfDM7mt%2FFmDiPMY%3D&reserved=0 and https://nam02.safelinks.protection.outlook.com/?url=https%3A%2F%2Fyoutu.be%2FPezP5yQkkV0&data=04%7C01%7CSimrat.Sounthe%40admisi.com%7C20e82c70c837433b6adb08d9a035f071%7C2f55bf3242d444b3a8c2930ac8b182b2%7C0%7C0%7C637716975812464567%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C1000&sdata=f8Nx%2FLuWUpTPBhWGRkLDY3VmfZSywNJBXkz3SExhdiM%3D&reserved=0 . Be that as it may, there is also a more modest run of US corporate earnings, with Fluor, Goodyear Tire & Rubber and Vistra likely to be among the headline makers. Next week’s schedule features US and China CPI & PPI, China Trade (this Sunday), UK Q3 GDP and monthly activity indicators, German Trade and ZEW survey, Japan Q3 GDP, Australian jobs, and inflation data in Brazil and Mexico, along with another barrage of central bank speakers, and there will be a closed door meeting of China’s Communist Party Politburo to set the policy agenda for next year’s CCP Congress.

** U.S.A. – October Labour market report **

– After two ‘disappointing’ Payrolls reports (though the broader details of those labour market reports were in fact robust), a pick up to 450K in headline and 415K on Private are expected anticipated, with the strength of the Services ISM and other anecdotal evidence pointing to a renewed revival in re-opening related hiring, as the delta variant impact has faded, with an education related boost to public sector jobs, following sub-seasonal trends in recent months adding a further potential fillip. Sharply improving trends in initial and continued weekly jobless claims are a further positive, though it has to be added that there still remain some 5.0 Mln either claiming benefits or that have left the workforce, but could rejoin. The Unemployment Rate has trended sharply lower over the past two months, even if this is primarily due to a still weak labour force participation rate, both are expected to improve 0.1 ppt on the month to 4.7% and 61.8% respectively, and as ever a close eye needs to be kept on the Underemployment Rate (last 8.5%), which is still a fair distance from the pre-pandemic low of 6.9%. If the assumption about Payrolls getting a boost from re-opening in the leisure and hospitality sectors, then this may serve to temper an expected 0.4% m/m 4.9% rise in Average Hourly Earnings, though hiring difficulties are clearly putting upward pressure on wages in these lower paid sectors. As much as the Fed has emphasized that a rate hike is contingent on a return to ‘full employment’, it is anything but clear what this means, given that many of those due to leave the labour force in coming years appear to have opted for an earlier exit, and others appear to be either in no hurry to rejoin, or impeded by the lack of affordable child care, or due to caring for the elderly or infirm.

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Risk Warning: Investments in Equities, Contracts for Difference (CFDs) in any instrument, Futures, Options, Derivatives and Foreign Exchange can fluctuate in value. Investors should therefore be aware that they may not realise the initial amount invested and may incur additional liabilities. These investments may be subject to above average financial risk of loss. Investors should consider their financial circumstances, investment experience and if it is appropriate to invest. If necessary, seek independent financial advice.

ADM Investor Services International Limited, registered in England No. 2547805, is authorised and regulated by the Financial Conduct Authority [FRN 148474] and is a member of the London Stock Exchange. Registered office: 3rd Floor, The Minster Building, 21 Mincing Lane, London EC3R 7AG.                  

A subsidiary of Archer Daniels Midland Company.

© 2021 ADM Investor Services International Limited.

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