The New Year kicks off with a bang as traders return to their desks. US nonfarm payrolls and minutes from the most recent FOMC meeting are on tap, while a trading update from Next is the main event on the corporate front.
The major event is the monthly US labour market snapshot offered by the nonfarm employment change and average earnings data for December.
Nonfarm payrolls increased by 228,000 in November as unemployment held steady at a 17-year low of 4.1%. Average earnings continued to climb at a rate of 2.5% annually.
While the headline number grabs the most attention, arguably of greater importance in terms of the US dollar and expectations for future interest rate hikes is the unemployment rate and wages. In its latest economic projections, the FOMC revised its unemployment forecast down from 4.1% to 3.9% in 2018 while core inflation will not improve any faster than previously thought. Therefore traders will be looking for signs that either the unemployment rate is moving down towards the Fed’s target or if wage growth is improving more than forecast, which may exert additional upward pressure on core inflation.
Staying with the Fed and on Wednesday we have the minutes from the FOMC’s December meeting to digest. With some dissenters voting against the rate hike, the release will help explain why some members do not feel the central bank should be hiking. Persistently weak core inflation and a flattening yield curve certainly has some worried about the risks of tightening too quickly. In that sense the minutes could convey doubts about the path of inflation and whether the Fed is as bullish on hiking in 2018 as the most recent dot plot indicates.
Eurozone Flash Inflation
The European Central Bank (ECB) also has an inflation problem that is forcing it to exit extraordinary monetary policy at a snail’s pace. Flash estimates for December inflation are due Friday and come after the ECB upgraded its outlook on the path of price growth at its last meeting.
The latest reading showed the headline inflation rate was 1.5% in November, while core inflation languished on 0.9%. According to the ECB’s latest estimates, inflation is seen at 1.5% in 2017 and 1.4% in 2018, versus a previous estimate of 1.2% for next year. Friday’s figures will help show whether the hard data is moving in a similar direction.
And for all that the ECB thinks core inflation will improve, it’s still forecast to be well short of the 2% target by 2020. So while the economic outlook is strong there is little sign that the ECB will seek to tighten more quickly than current market expectations suggest.
Next Trading Update
The UK high street is having a rough ride but could Christmas deliver a lift? Bellwether retailer Next reports its peak season trading on Wednesday and this will deliver a read right across the sector.
Forecasting sales at Next is proving hard. In November the firm said that sales performance was so volatile it had no idea what to expect over the vital Christmas trading period and warned that the volatility makes it ‘very hard to determine any underlying sales trend’. This is a worry, although it also reported an improving trend in sales growth throughout the year.
Source: ETX Capital