The Week Ahead: US jobs; eurozone inflation; US PCE Index:
The US jobs report for November – including the closely watched non-farm payrolls figure – is set to be released on Friday, while the week’s other major diaried economic events include Wednesday’s eurozone inflation print for November and Thursday’s US PCE price index reading for October.
OUR TOP THREE EVENTS, 28 NOVEMBER - 2 DECEMBER:
Wednesday – EU CPI (November)
Although the recent easing in energy prices suggests that inflation may soon begin to slow, the lagging indicator that is Europe’s consumer price index (CPI) has continued to rise. Euro area CPI increased 10.6% in the year to October, up from 9.9% in September. However, October also saw Germany’s producer price index (PPI) fall 4.2% month-on-month, its first monthly decline since May 2020. On an annual basis, German PPI increased 34.5% in October, down from a record high of 45.8% in August and September
If PPI is indeed a leading indicator for headline CPI, and provided that temperatures don’t drop unseasonably low in the coming weeks, there is a chance that consumer price inflation could soon start to ease, even though CPI readings are likely to remain at historically elevated levels for some time.
Core inflation, which excludes volatile food, energy, alcohol and tobacco prices, rose 5% in the year to October, up from 4.8% in September. With the European Central Bank concerned about the risks of tightening too aggressively, softer headline and core CPI readings for November could help build a case for the ECB to slow the pace of future interest rate hikes to 0.5 percentage points or lower. The ECB’s next interest rate decision is due on 15 December.
Thursday - US core PCE price index (October)
The Federal Reserve’s preferred measure of inflation edged higher at the last reading. The personal consumption expenditures (PCE) price index excluding food and energy, also known as the core PCE price index, increased 5.1% in the year to September, edging up from 4.9% in August. The inflation gauge is, however below its February peak of 5.4%.
With core prices rising, the Fed appears to have little incentive to pivot from its hawkish stance on monetary policy. That said, if core price growth were to ease, the US dollar – which has fallen from its late-September peaks – could come under further pressure.
Friday – US non-farm payrolls (November)
Despite concerns over the economic outlook, the US labour market remains robust. In October the US economy added 261,000 jobs, beating the figure of 200,000 that economists had expected, but down from September’s upwardly revised tally of 315,000.
However, the unemployment rate edged up to 3.7% in October, versus 3.5% in September, while annual growth in average hourly earnings slowed to 4.7%, down from 5% a month earlier. More recently, new claims for unemployment benefits rose to 240,000 in the week ending 19 November, the highest total since August.
The October jobs report offered little sign of a wage-price spiral, even though vacancies are still at high levels. Job cuts rather than pay rises have been a theme of the current earnings season, particularly at the big tech companies. Amazon announced the loss of over 10,000 jobs worldwide, Meta cut 11,000 jobs and Twitter also saw a spike in the number of staff heading for the exit – some of them voluntarily because they don’t want to work for new owner Elon Musk.
While not all of these job losses are in the US, a trend towards lay-offs does appear to be starting to build. That said, it is likely to take time to filter through to the official jobs report since high numbers of job vacancies imply that many job seekers will soon find new employers. It’s also important to remember that hiring tends to pick up around Thanksgiving and Christmas, driven by seasonal recruitment of temps.
For November, economists estimate that 200,000 jobs were added to the US economy, which would be the lowest number this year. The unemployment rate is expected to tick higher to 3.8% as the labour force participation rate increases, while earnings growth is set to remain flat at 4.7%. Overall we experienced a relatively subdued week in terms of price action and direction as traders squared books going into the Thanksgiving holiday. This week we can position for a continuation of the recent risk on sentiment as key data points will be released, particularly the US employment report on Friday. We look to buy dips in equity indices and crypto assets and sell rallies in USD, the seasonal ‘Santa Rally’ is upon us and risk reward dictates we trade inline with the short term trend.
