Asian stock markets rose ahead of the key US employment report later today, diverging from falls at the close on Wall Street. The main focus yesterday was the US ADP private sector jobs report which was stronger than expected, providing support for the dollar and Treasury yields. Latest Fed comments, as well as the December meeting minutes, signalled further rises in interest rates ahead and the likelihood of no cuts this year in contrast to market pricing for rate reductions in late 2023.
The December construction PMI survey is the only UK economic release today. The focus instead will be on Eurozone and US data reports, as well as several central bank (mainly Fed) speakers later today. In the Eurozone, lower energy prices are likely to have driven a marked fall in headline CPI inflation in December. Preliminary data already released for Germany, France and Spain have all surprised on the downside and suggest that today’s Eurozone flash CPI estimate may fall to close to 9%, below the consensus forecast of 9.5% and down from 10.1% in November. However, this will likely provide limited comfort for ECB policymakers, especially as core inflation excluding food and energy is forecast to continue accelerating. Eurozone retail sales and economic confidence are also due, with the latter potentially improving for a second consecutive month which would raise hopes of a shallow economic downturn in the single currency area. German factory orders earlier this morning, however, showed ongoing weakness in the manufacturing sector.
In the US, the latest monthly labour market data are expected to add to the evidence of a labour market that remains resilient despite attempts by the Fed to slow the economy with higher interest rates. As noted above, yesterday’s ADP jobs report was stronger than expected and adds to the conviction level for our forecast for nonfarm payrolls to rise by 240k. The consensus forecast for a 200k rise. We also expect the unemployment rate to fall to 3.6% from 3.7%, compared with the consensus forecast for no change. Annual growth in average hourly earnings is expected to edge down to 5.0% from 5.1% but that would still be above levels consistent with the Fed’s inflation goal. Other US data today include November factory orders and the December ISM services survey. We forecast the ISM index to ease back to 54.6 from 56.5 in November but remaining in growth territory.
As mentioned above, there are several central bank speakers today, mainly from the Fed but also including the ECB’s Chief Economist Philip Lane. As there have not been a lot of speeches over the holiday period, markets will likely pay close attention to latest comments from officials on the outlook for the year ahead.
The pound fell to $1.19 yesterday following the US ADP data and is moderately firmer overnight. US 10-year Treasury yields rose towards 3.80% but have since fallen back.
