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Macroeconomics: The Day Ahead – 2 October 2020

Good Morning: The Long & the Short of it and The Bigger Picture

Written by Marc Ostwald, ADMISI’s Global Strategist & Chief Economist

  • Trump positive Covid-19 test likely to dominate day’s trading; lighter data schedule has Japan labour data and Australia Retail Sales to digest, ahead lie Eurozone CPI and US labour data; plenty of Fed and ECB speakers and EU Summit; light data schedule next, but plenty of ECB and Fed speakers
  • Eurozone CPI: German, French, Italian & Spanish CPI ‘misses’ point to downside risks on headline and core
  • US Payrolls growth seen slowing further; seasonal adjustment for back to school to drag; census workers still the wildcard; temporary vs. permanent layoffs and Underemployment Rate the key metric
  • US Unemployment Rate expected to fall modestly
  • CNBC Asia interview re: US labour data and economy (recorded before Trump test news). Click here to listen.
  • IG Podcast ‘Is There A Global Economic Reset Coming’ Click here to listen



After a busy couple of days for data and events, today’s run is rather more sparse on data, with the Japan labour statistics and Australian Retail Sales to digest from the overnight session, while ahead lie Eurozone CPI and the key item of the day the US labour market report, accompanied by final Michigan Sentiment and Factory Orders. In event terms, the EU Summit continues with the focus on foreign policy issues, such as the Belarus lection aftermath and the Greece / Turkey / Cyprus tensions. There are more ECB and Fed speakers on tap, but these appear unlikely to offer any fresh policy insights beyond what has already been said this week. News of Trump’s testing positive for Covid-19 test throws a spanner in the pre-election process, as it clearly limits his ability to campaign for the presidency, and the initial negative market reaction market implies that volatility will remain elevated as a result. Brexit will also be on the agenda, as the UK and EU hold press conferences after this week’s negotiations, as the October 15 deadline (likely to be prove as moveable as any other when it comes to EU negotiations) looms. The signals have as ever been mixed, with some progress made on state aid rules, but none on fisheries, and the EU’s move to start legal proceedings against the UK, due to the UK’s Internal Market Bill breaching UK/EU the Withdrawal Agreement treaty only adding more piquancy to proceedings. The fact that both sides remain in negotiations, rather one or both withdrawing is perhaps the more important aspect, signalling the intent of completing some form of deal before year end, despite seemingly trenchant differences. Next week’s data schedule is relatively light, kicking off with Services PMIs around the world, which are accompanied by German Orders, Production and Trade, UK monthly GDP and activity indicators, and Japanese Wages. Fed and ECB speakers will again be very plentiful, with Fed and ECB September policy meeting minutes also due, and the RBA expected to keep policy unchanged.


Eurozone – September CPI 

The consensus looks for a rise of 0.2% m/m to leave the y/y rate unchanged at -0.2%, with core CPI also seen unchanged at 0.4% y/y. However with German and Italian CPI proving much weaker than expected, and French and Spanish CPI also missing forecasts, the risks are heavily skewed to the downside. Per se, this would tend to cement market expectations of additional easing (more QE) ahead of year end, though the divisions on the ECB council about future policy direction, which have been clear to see this week, there is good reason to be cautious about the timing of any further easing at the very least.


U.S.A. – September Labour report

Payrolls growth is expected to slow again to 875K for both headline and Private Payrolls, vs. 1.371 Mln and 1.027 Mln respectively in August, the latter difference highlighting the wild card of census worker hiring, which the September forecast assumes will be negligible, or at least offset by layoffs at state level due to constrained state budgets (another reason that a fiscal package needs to be passed). There is also likely to be a downward pull from seasonal adjustment, which for September assumes a jump in education jobs as the new school year commences, which are likely to be lower this year, as was evident in July with the end of school year temporary layoffs proving lower than normal. The household survey is expected to show the Unemployment Rate falling at a much slower pace to 8.2% from August’s 8.4%. But the key item in today’s report will be the balance between temporary and permanent layoffs, with the latter expected to rise again, and the Underemployment rate (last 14.2%) also requires attention. Average Hourly Earnings is expected to dip to 0.2% m/m from August’s 0.4%, though thanks to base effects this would still see the y/y rate edge up to 4.8% from 4.7%; the pick-up in small company hiring seen in the ADP report implies a rise in lower paid jobs, which imparts some downside risk for wages. However whatever the outcome, Trump testing positive for Covid-19 is likely to prove more significant in terms of today’s trading.

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