Macroeconomics: The Day Ahead for 7 February

The US monthly labour report dominates the end of week schedule, as markets digest India’s RBI cutting rates by 25 bps to 6.25 as expected, Japan’s Household Spending and German Trade and Industrial Production, with Canadian jobs data, US Michigan Sentiment and Consumer Credit, and Mexican CPI ahead, while Sunday sees the release of China’s CPI and PPI There also Fed, ECB and BoE speakers, with a lighter day for US corporate earnings lacking an obvious headline grabber. In terms of the overnight news, the unexpectedly robust pick-up in Japan’s Household Spending (2.3% m/m vs. forecast of -0.2% m/m) only ups the ante in terms of the timing of the next BoJ rate hike, though it also makes clear why BoJ speakers have upped the their hawkish rhetoric, this year’s wage settlement trends will remain a key aspect, but attention will need to be paid to the meeting between Trump and Ishiba. German Industrial Production once again missed forecasts, underlining the need for any new government coalition to hit the ground running in terms of a stimulus package, while a record EUR 71.4 Bln 2024 trade surplus with the U.S. will be grist to the mill for Trump to impose tariffs on the EU, the question is how targeted the tariffs are going to be, given that they could also enflame already well documented divisions among EU member states. Last but not least, India’s RBI cut rates as expected, but maintained a neutral policy stance, suggesting no more than one further cut, with new governor Malhotra’s FX comments implying that the RBI will be less active in its interventions than under previous governor Das, and per se a choppier ride for the INR.

** U.S.A. – January labour report **

– The wait and see messaging from the Fed perhaps lessens the importance of today’s labour data, given that whether better or worse than expected, rates are likely to be on hold until the middle / end of Q2. Be that as it may, the report will also be accompanied by the annual revision to the establishment (Payrolls) survey, with a majority of economists looking for a downward revision for 2024 of 600-700K, though there are some estimates of closer to a million. While there was a good deal of hubbub last year’s revision, above all to justify what proved to be rather premature Fed rate cut expectations, this time around, the conclusion is likely to be that even with the downward revisions, US labour demand remained resilient, even if it has clearly cooled. In terms of the monthly numbers, the stronger than expected ADP, the jump in ISM Services Employment impart some upside risks to the expected dip to 170K in headline Payrolls and 150K in Private Payrolls, with the fall predicated on a drag from the California wildfires and colder weather. While tariffs are clearly dampening hiring intentions and overall activity, this is more likely to be a factor for February’s payrolls. December’s Houshold Survey was the first in a number of months to show some strength (in contrast to Payrolls over the same period), and the drop in the Unemployment Rate to 4.1% is expected to be sustained, with Average Hourly Earnings posting another 0.3% m/m increase, which would thanks to base effects see the y/y rate dip 0.1 ppt to 3.8%.