Market movers today
Today, there are no global market movers due to be released. Later this, week US CPI figures and euro area wage growth are the main focus, while markets will also continue to scrutinise US developments on trade policy and potential further steps against China. We still do not expect recent US trade actions to evolve into a fully fledged trade war but we stress that an escalation is still a key risk for market sentiment.
In Italy, we expect the leadership of the Democratic Party (PD) to meet today to start the procedure to replace party head Matteo Renzi, who has said he will resign after a new government is formed. Discussions about possible coalition possibilities following the inconclusive election result last week are likely to be on the agenda .
In Scandinavia, we get Danish CPI inflation for February, as well as export data (see overleaf).
Selected market news
Over the weekend, China’s National People’s Congress voted to abolish the two-term limit on the presidency, allowing for premier Xi Jinping’s indefinite reign. Term limits, intraparty democracy and other checks and balances were originally instituted by former premier Deng Xiaoping to ensure that the madness that was Mao would never plague the Middle Kingdom again. Xi Jinping is no stranger to Mao’s nebulous socioeconomic experiments. He was sent to live in a cave in the count ryside as Mao sought to re-educate the urban elite.
The world may be focused on Washington but , in our view, a consolidation of power in the world’s superpower in waiting is likely to trump US bravado in dictating geopolitical outcomes.
On Friday, US nonfarm payrolls came in strong and support risk assets. The headline figure was a very high 313,000 jobs, which materialised through a rise in the participation rate, as the unemployment rate held steady at 4.1%. Hourly earnings rose 2.6% year on year, which was below last month’s record figure and dampened the US reflation story.
The rise in the US participation rate was the most interesting part of the payrol ls report. That the US unemployment rate is a biased barometer of labour market slack and hence of the output gap is not new. The big uncertainty is how much of the low participation rate is explained by structural factors and how much labour is merely waiting in the wings. This issue is a key determinant dictating how much further the US economy can go before igniting wage inflation. Speaking of inflation, on Tuesdaywe get a peep at US CPI inflation numbers. We expect core CPI to come down after a strong batch of recent prints.