Macroeconomics: The Day Ahead for 3 December

A very busy day for statistics awaits, kicking off with the array of Services PMIs from around the world, inflation data from Turkey which will only very partially capture the pressures that await from the latest TRY slide, with French Industrial Production to digest ahead of US and Canadian labour data, and the generally largely overlooked US Factory Orders. A relatively quiet day in terms of events, with ECB’s Lagarde and BoE’s Saunders the only central bank speakers, while the EBA (European Banking Authority) publishes its annual risk assessment report.  Next week’s schedule will find its focal points in the US and China CPI; China Trade; German Orders, Production and Trade; UK monthly GDP, Production and BRC Retail Sales, with the US also looking to JOLTS Job Openings, Trade Balance and preliminary Michigan Sentiment. On the central bank front, the Fed goes into purdah ahead of the Dec 14/15 FOMC meeting, no change rate decisions are expected from the RBA, BoC and RBI, while Brazil’s BCB is expected to deliver another bone crunching 150 bps rate hike to 9.25%, which would mean a cumulative 725 bps since it started raising rates in March.

World – November Services PMIs

– Readings from Asia saw the China Caixin reading echo the drop in the official NBS reading, as the Covid-19 zero tolerance restrictions continue to restrain the recovery in the sector, while Japan’s final reading saw a marked upward revision to 53.0 from the flash 52.1, also echoing the Economy Watchers Survey as easing activity restrictions continue to provide a boost, while India posted another very strong reading at 58.1, only marginally lower than the decade high of 58.4 in October. Eurozone and UK readings are seen unrevised from what were in some cases substantially better than expected readings, with the focus on Spain and Italy, with the rise in infection rates perhaps imparting some downside risks, but Omicron variant concerns may not have been captured in the data collection time period. The US Services ISM is forecast to drop back to 65.0 after spiking to an all-time high of 66.7 in October, but obviously remain very robust, with the focus above all on the prices component.

U.S.A. – November Non-farm Payrolls & labour market data

– Following on from another very low weekly initial claims (222K) report yesterday, Payrolls are seen up 550K, with Private Payrolls up 525K, with the risks seemingly to the upside of the consensus, given solid ISM Employment sub-indices, a record high of 46.9 for the Consumer Confidence Labour Differential sub-index (see chart), and Initial Claims back at pre-pandemic levels, even if total employment will still be well in excess of 3.0 Mln below February 2020 levels. A combination of ebbing delta variant constraints, higher wages and a gradual depletion of household savings as the impact of stimulus cheques wanes, along with record vacancies should give a boost. These in turn are expected to see the Labour Force Participation Rate edge up to 61.7%, still well off the 63.3% level see in February 2020, even if the latter level is unlikely to be regained given that the pandemic has clearly accelerated the exit of baby boomers from the labour force. A further dip in the Unemployment Rate to 4.5% from 4.6% is seen, though there is some risk of a rise if strong labour demand has encouraged more people to the workforce given waning pandemic related constraints, above all on child care. But with the Fed clearly putting much greater emphasis on inflation pressures than the ‘full’ employment component of its mandate, it will be Average Hourly Earnings that attracts more attention, with another 0.4% m/m rise expected, edging up the y/y rate to 5.0%, the highest since a base effect bloated 5.2% in February. Be that all as it may, the focus will still be on next Friday’s CPI data, with a 0.7% m/m headline rise expected to push the y/.y rate up to 6.7% from 6.2%, and the highest since 1982, while core CPI is projected at 0.5% m/m 4.9% y//y (vs. Oct 4.6%), highest since June 1991.