Written Commentary
- US labour data tops modest run of data and events; digesting French Production, South Korea inflation; final Michigan Sentiment, UN FAO Food Price index, some central bank speakers and US ‘Big Oil’ earnings ahead
- USA: Payrolls seen increasing in line with recent trend, but weather and revisions heighten risk of outlierUSA: Unemployment expected to edge higher as labour force expands, wages seen easing modestly in m/m terms
EVENTS PREVIEW
The US monthly labour market report will be front and centre today, on an otherwise rather minimalist schedule of data and events. There is French Industrial Production to digest, and final US Michigan Sentiment ahead in terms of statistics, with a smattering of central bank speakers (BoE’s Pill and ECB’s Centeno). ‘Big oil’ dominates the US corporate earnings run via way of results from Chevron and Exxon Mobil, accompanied by LyondellBasell and Southern Copper, and the UN FAO will publish its World Food Price Index. Next week has a relatively modest run of statistics, kicking off with Services PMIs around the world, the US only has Trade, annual US CPI revisions and the Fed’s Senior Loan Officer survey, China looks to CPI, PPI and Credit aggregates, Germany to Factory Orders, Industrial Production and Trade, while UK awaits the update on the LFS labour market data which has been suspended since September, Japan looks to Labour Cash Earnings and Household Spending, and Canada has labour data. The RBA is seen leaving its policy rate unchanged, as are India’s RBI, Poland’s NBP and Banco de Mexico, with Czechia’s CNB expected to cut rates a further 25 bps, and there will be a fair volume of central bank speakers. The China / Asia Lunar New Year holidays start on Thursday (ending on February 16), while it will be a peak week for US corporate earnings. The OECD publishes its Economic Outlook updates, as agricultural commodity markets look to USDA’s WASDE, and monthly grains and oilseeds S&D reports from Brazil’s CONAB and Canada’s StatCan.
** U.S.A. – January labour market report **
The consensus looks for a very ‘military medium’ gain of 185K in headline Payrolls and 165K for Private Payrolls, but there are some downside risks, even without attaching any significance to the 107K ADP Employment gain, given its lack of predictive value in recent years. Annual revisions to Payrolls data up to March 2023 will average -25K per month (as per the BLS’ announcement in August), it then depends how the BLS then adjusts the data for the final 9 months of 2023. There are also weather effects, firstly the unseasonably cold and stormy weather in the January survey week, as well as the risk of a reversal or ‘payback for some of the warm weather boost to December’s stronger than expected 216K. This is in addition to the now quite well publicized drop in response rates to the labour force survey (from 90% plus pre-Covid to around 75% recently). Per se this is a recipe for statistical noise, that would prompt a sharp initial market reaction to any larger outlier outcome. In terms of the household survey, the Unemployment Rate is expected to edge up 0.1 ppt to 3.8% on a combination of an expanded labour force, and softening labour demand, which is also what the quite well correlated ADP report implies. Average Hourly Earnings are seen easing back to the Aug-Oct level of 0.3% m/m after two 0.4% m/m prints, which would leave the y/y rate unchanged at 4.1%. Given the potential for statistical noise, over-extrapolating from today’s report about labour market trends is probably best avoided.
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