Market movers today
The key event today will be the US employment report, where all focus will be on the wage growth component . The increase in hourly earnings jumped to 2.9% y/y in January from 2.7% y/y in December, stirring inflation fears and causing a jump in US yields. Today, we look for a small decline in hourly earnings to 2.8% y/y (consensus 2.9%), which would likely give a relief in markets and dampen the US inflation fears. The unemployment rate and payrolls will also be in focus. We look for an unchanged unemployment rate at 4.1% (consensus 4.0%) but broadly agree with consensus on payrolls to be around 200k.
The Fed’s Evans (non-voter, dovish) is due to speak in a CNBC interview shortly after the employment report . This is one of the last chances ahead of the Fed’s blackout period starting on Saturday.
In Europe , industrial production is due in both Germany and the UK.
In the Scandies, Norwegian CPI will be in focus. Sweden is due to release average house prices and household consumption data.
Selected market news
As expected, the ECB changed its forward guidance at ye sterday’s meeting so it no longer entails the QE flexibility. President Mario Draghi struck a softish tone in the press conference, in particular as victory on inflation cannot be declared yet . Overall, our ECB view has not changed, as the meeting included little new guidance. Importantly, the decision yesterday was taken unanimously. In the updated staff projections, the near-term growth out look was strengthened but we still think the ECB’s core inflation forecast remains too optimistic. For full details please see ECB Review: “Hawkish” action – softish language, 8 March.
In a surprising move, US President Trump has agreed to meet with North Korea’s leader Kim Jong-un (first ever US president to meet with a North Korean l eader). While markets consider this mainly to be good news, as it may increase the likelihood of a diplomatic solution, we think this move is ” high risk, high reward” in the sense that it also increases the risk that the situation could escalate if the summit collapses. The meeting should take place in May.
As expected, Trump made his decision to impose tariffs on steel and aluminium imports official yesterday, exempting Mexico and Canada for now due to the ongoing NAFTA renegotiations (other countries may be exempt as well). The EU and China have already said they will retaliate to any measures taken by the Trump administration. Trump’s next move is likely to target China specifically. The Republican establishment also seems to support this, at least based on House Speaker Paul Ryan’s statement yesterday . It remains our base case that future measures will also be limited in scope, but we believe trade policy will remain a market theme for some time. For more details on US trade policy, Research US: Symbolic protectionism with limited impact on growth and inflation but risks remain, 7 March 2018.
The Bank of Japan made no changes to monetary policy at its meeting overnight. While consensus among board members is still that inflation is moving towards 2%, Kataoka still thinks more easing is needed.
