ACM Update 09-12-24
The US jobs market returned to buoyant form in November, according to the latest Non-Farm Payrolls figures released last week. More jobs were advertised, but overall unemployment edged up fractionally. French politics also returned to the fore, with Michel Barnier becoming the shortest-lived Prime Minister in recent history.
This week brings the latest update on US inflation, which combined with the November jobs data will give strong clues as to the next Federal Reserve policy action on Wednesday 18th. This Thursday is the turn of the ECB though, who look likely to deliver a further rate cut.
The US employment sector bounced back in November, returning to more of a “normal figure” of 227,000 jobs added to the US economy in the month. In fact, the reading was almost bang on the year to date average of 231,000 monthly jobs added. Such a figure will allay any concerns that Federal Reserve members may have had about a looming slowdown.
That said, it wasn’t all good news on the jobs front, as unemployment edged back up slightly to 4.2%, from 4.1% last month. Average earnings also seem to be moving in the wrong direction, with a bigger gain than hoped. The figure increased by 0.4% in November, not good news when intending to reduce overall inflation.
Tuesday’s JOLTS Job Openings data showed a more positive outlook overall though. The number of advertised jobs in the US grew by some 300,000 last month, reversing half of the drop seen the month before.
Other data releases produced a slightly more mixed US picture. The manufacturing data for the month demonstrated a better figure than had been hoped for. The services sector though demonstrated its weakest figures for three months, which is concerning given this makes up a far larger proportion of the US economy.
There were two other factors last week to offer clues towards the upcoming Fed meeting, both of which arrived on Wednesday evening. Firstly, Chairman Jerome Powell stated the US economy is in “very good shape” currently, seeing no reason for that path to change. He also referenced that the economic position is allowing the Fed to be cautious about cutting interest rates. This created some Dollar strength, with the likelihood of a rate cut in nine days’ time diminishing further.
Powell's sentiment was further backed up by the Beige Book release shortly after. This contains the economic data to assist the Fed policymakers in their decision making, and also confirmed no signs of a slowdown across the broader economy. Consumer and business sentiment, also remains high.
Overall, from open to close for the week, the Dollar lost around 0.5% versus the pound as the greenback continues to gradually retrace from the 7% gains accrued from the end of September to the end of November. Were it not for the Non-Farm Payrolls data, sterling could have gained more. But the bounce back in the economy in November has seen the chances of a December rate cut reduce.
Movements on the pair can be seen in the chart below:
Whilst the UK also has an interest rate announcement in the next ten days, the likelihood of a cut is much lower from the Bank of England than it will be from European and American counterparts. However, if we had nine Swati Dhingra’s on the MPC panel, there would definitely be a cut! The policymaker spoke in a Bloomberg TV interview last week, maintaining calls for policy easing.
Dhingra’s areas of concern surround current policy hurting living standards, business investment and productivity longer term. She did however agree that a “gradual” approach to cuts should be used, akin to recent comments from Bank of England Chief, Andrew Bailey.
Indeed, Bailey spoke last week too, where he re-emphasised his gradual comments for future policy. The Governor suggested four rate cuts for next year seemed right for now, whilst financial markets are currently pricing in three in the same timeframe. This could quickly change though based on any knock-on effects of the recent budget, as well as those of the proposed tariffs of a certain Donald Trump.
In terms of UK data, house prices are continuing to benefit from the gradual reducing of interest rates. Nationwide house price index data released last week showed an increase of 1.2% in November. This marks the biggest monthly gain since March 2022, according to the lender.
Elsewhere, the array of PMI data showed broadly positive figures. Manufacturing was slightly lower than forecast, whilst Services and Construction were both in expansion. Like the housing market, Construction is also benefitting from the prospect of lower interest rates ahead, seeing the strongest monthly rise in commercial construction activity in over two and a half years.
For GBP, given the lack of surprising or unexpected data releases last week, the Pound was relatively stable across the board.
That just leaves Eurozone data to cover, where the French political shenanigans were very firmly in the spotlight. Whilst Emmanuel Macron will be hoping that the re-opening of Notre-Dame can detract some of the attention, the truth of the matter is that focus was mainly on the current revolving door that is the Prime Ministerial position.
Former Brexit negotiator, Michel Barnier, left his post after MPs voted overwhelmingly in a motion against him, a mere three months after being appointed by Macron. This came after Barnier had used special powers to force through his budget without a vote. With that and events in South Korea, it was a bizarre week politically speaking.
All of this leaves the Eurozone in a precarious position. One of its biggest economies has been in political limbo for months now, and that doesn’t look like changing any time soon. Data wise, the picture isn’t that much better, highlighted by the November retail sales release delivering a -0.5% shrinking in sales.
Of the Manufacturing and Services PMI releases, these offered little to cheer either. The latter was improved, but still sub-50 (indicating contraction) for the bloc as a whole. On both Manufacturing and Services, the Spanish figures were the standout performers, as they have been for a number of months now. The Iberian country also leads the GDP growth figures for the Eurozone this year.
During a speech in the European Parliament last week, ECB President Christine Lagarde also addressed the topic of growth. She too thinks that growth will be weaker in the short term, then “gathering steam” further ahead. In line with ECB forecasts, she reiterated that they expect inflation to temporarily increase in Q4, but to then decline back to the 2% target over the course of 2025.
The Euro was pretty flat against sterling last week, as illustrated in the chart below:
The week ahead:
Monday – Eurogroup Meetings, BoE Ramsden speech (13:00 UK time)
Tuesday – Reserve Bank of Australia rate announcement (03:30), ECOFIN Meetings, OPEC Meetings
Wednesday – US CPI inflation (13:30), Bank of Canada rate announcement (14:45)
Thursday – Swiss National Bank rate announcement (08:30), ECB rate announcement (13:15), US Unemployment Claims (13:30), ECB Press Conference (13:45)
Friday – UK GDP (07:00)
As the festive period gets into full swing, one would expect a quieter spell for central bank meetings. Alas not the case, with nine of the G10 central banks debating their own policies in the next two weeks. Uncertainty surrounds many of them as the Federal Reserve are far from certain to be cutting interest rates next week. Recent data has supported the case for a festive pause.
Over at the ECB, their final meeting of 2024 takes place this Thursday, where investors see it likely that Santa will bring a 25-basis point cut for those who have been well-behaved on the continent. Lagarde & Co will be hoping that this kickstarts growth in the bloc, which is currently the biggest concern.
In Australia, a hold in policy is projected for the early Tuesday morning meeting, whilst the Bank of Canada should go aggressive again, with their second half per cent rate cut in a row. Andrew Bailey and his Bank of England colleagues seem more likely to hold next week.
For this week, US inflation data is probably the big one outside of the respective interest rate announcements. A jump up in inflation could well lean the Federal Reserve closer to a hold next week.
On the UK data front, nothing more than UK GDP data to be excited about. This is projected to deliver a growth of 0.1% month on month, which would merely balance out the -0.1% of the month before.
As always, geopolitical events are front and centre at the moment, which can cause further uncertainty. With trading conditions quieter, we can see volatility in and around Christmas so make sure to reach out to the Aston team with any payment concerns.
Have a great week.
