Market movers today
Today all eyes will be on the US employment report. We expect that nonfarm payrolls rose 175,000 in July but markets will focus on the unemployment rate and wage growth. We expect the unemployment rate was unchanged at 4.4%, while the average hourly earnings increase likely declined to 2.4% y/y from 2.5% y/y. The Fed continues to struggle with the combination of low unemployment and low inflation; see also our take on the jobs report for June in Flash Comment US: Fed’s dilemma, 7 July 2017.
In Germany, factory orders for June are also released, which should show another monthly increase of 0.8%, in light of the continued strong business confidence and recent increases in the Ifo index.
In Sweden, NIER will publish its new economic forecasts.
Selected market news
The main event in the European market yesterday was the Bank of England meeting. As expected the bank maintained the Bank Rate at 0.25% and kept targets for bond purchases unchanged. However, importantly the vote count was 6-2 compared to 5-3 last time. Hence, one member less voted for a rate hike this time. The BoE decision was the latest evidence that central banks are in no hurry to normalise monetary policy despite the economic recovery as wage growth remains muted. EUR/GBP rose sharply and broke above 0.90 on the announcement given the dovish twist . West ill expect the BoE to remain on hold until the Brexit negotiations are concluded in spring 2019. The main reasons are that we think the BoE is still too optimistic on both wage growth and GDP growth, and political uncertainty remains high due to Brexit. Hence, we look for further sterling weakness in the coming months.
The ‘debt ceiling’ pencilled in by end of September by US agencies is moving closer day by day. But yesterday, the White House made it clear that it would back the "cleanest possible" debt ceiling increase despite calls from conservatives to seek spending cuts in return. Office of Management and Budget Director Mick Mulvaney said yesterday at a briefing that the administration would not seek any spending cuts in a debate on increasing the debt ceiling. Remember, this is a demand from members of the Tea Party and conservative Freedom Caucus in the House. This should be seen as an open invitation from the White House to the Democrats to secure a bi-partisan agreement .
However, the Trump administration has other issues to deal with than the debt ceiling. Last night there were reports that Special Counsel Robert Mueller is using a grand jury in Washington with the purpose of investigating Russia’s interference in the 2016 elections. This piece of news can hardly be seen other than a sign that his inquiry is growing in intensity. A grand jury would imply that witnesses can be called in and that they have to testify under oath. The news pushed most US equity indices into the red and only the Dow Jones was in green as the closing bell rang. The US Treasury market also saw support on the news and we should expect a positive opening for European bonds this morning despite the rally yesterday. And Trump? He called the investigation a " total fabrication".
