Just how firm is the US labour market?
Yesterday’s ADP Private Employment data suggests another month of firm jobs growth due on Friday, as 200,000 jobs were added across March. Friday’s nonfarm payrolls looks to follow suit, with 205,000 jobs expected to have been added in that survey. Average hourly earnings, a strong indicator of inflationary pressure, is expected to rebound to +0.2%, another sign that US labour is becoming far more robust.
The fact that jobs growth remains so strong and that the unemployment rate just 0.1 percentage points above from the Fed’s idea of full employment (4.8%) is a further signal that Janet Yellen and Co are willing to let the labour market (and hopefully wage growth) overheat in the near term in order to nip disinflationary fears in the bud.
Less than 50% chance of a US rate hike by November
Due to this belief, a stronger than expected jobs report this Friday will not necessarily result in a significantly stronger dollar – as Yellen’s speech on Tuesday reinforced the market’s belief that low rates are here to stay. Rate expectations have shifted even further – markets are now betting on a less than 50% chance that rates will have risen by November – with a chances of a rate hike in 2016 becoming ever slimmer.
Eurozone Inflation expected to drop again
The ECB’s latest easing policy in March will be tested for the first time today, with Eurozone CPI expected to improve modestly but remain negative, from -0.2% to -0.1%. Despite the ECB’s measures only being announced on the 10th of the month, financial conditions had eased significantly in the form of low government bond yields and a weaker euro. However, one recurring theme of the ECB’s monetary policy over the past five years or so is that looser monetary conditions do not necessarily result in inflationary pressures.
UK GDP expected to show firmer footing than US
UK GDP figures today are expected to confirm annual growth at 1.9%, 0.5 percentage points higher than the latest US figures, but this is unlikely to increase the calls on the Bank of England’s Monetary Policy Committee to start increasing rates anytime soon – the threats to financial stability, as highlighted numerous times by central bank and government speakers, are deemed far too high to begin considering tightening policy at this time.