More rotten economic data came out of Europe. The German industrial production number was just terrible, this has made investors even more disappointed. The number fell below the expectations (0.2%) and printed the reading of -1.1%. Even the export number for the country wasn’t great either, it also missed the expectations and dropped by 0.9% MoM basis. Thanks to the global trade war which has impacted these numbers and central banks are still immune to this.
Sentiment over in Europe is really negative due to the strong possibility of new tariffs kicking in on China today and investors are worried about the reaction from Beijing. For investors, they are looking at the numbers and thinking how much of this has something to do with the ECB winding down it’s balance sheet and how much of this is down to Trump ranching up the tensions in the global trade war arena.
Back in the US, it is only about one data which matters the most- the US NFP. One thing which is on every trader’s mind is if this is going to impact the Fed’s rate decision. Highly unlikely, we do not think that today’s number has actually has that kind of power. The Fed is pretty much determined that another rate hike is on the table and they have the economic data fully supporting their thesis.
Having said this, it doesn’t mean that today’s US NFP number is spineless. There are lot of important details which are embedded in this number and this could help investors to understand the economic picture more closely. But let’s have a look at the ADP number first, it tells you that the tone isn’t positive because the ADP numbers missed the expectations. The number printed reading of 163K while the forecast was for 217K. We didn’t see any kind of trade war between effect in the ISM manufacturing number because the employment component of this number was fairly robust.
So, where does this all leave us today? The wage story will take the centre stage today. Tightening labour market should produce some meaningful impact here and this has been missing. We have witness an increase in the wage growth but the acceleration rate of this wage growth doesn’t add up with the rest of the components of the labour market. The US businesses are reluctant to add extra dollar to the wage growth and this should not be the case given if the rest of the component of the wage growth story are accurate.
Nonetheless, the headline number is expected to come in at 198K and the unemployment rate could fall further to 3.8%. A fall in the unemployment number would prompt Trump’s twitter account to show some flashy messages and claim the victory.
