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A buoyant market for new jobs helped underpin the US economy last year, boosting stock markets in the process. Data on Friday will show if the trend held up as the year drew to a close.
November economic data painted an unclear picture. Non-farm payrolls, the most watched metric for the US jobs market, rose by a robust 227,000 — more than expected. But the separate household survey showed a surprise uptick in the unemployment rate, from 4.1 per cent to 4.2 per cent, prompting some unease that the underlying picture is already weakening.
Economists expect Friday’s non-farm payrolls numbers to show that 150,000 new jobs were created last month, according to a poll by Reuters, and they expect the unemployment rate to have held steady.
“If December’s data shows unemployment remains stable, then the risks of the US falling into recession this year will continue to be low — to the benefit of risk assets,” said Mansoor Mohi-uddin, chief economist at the Bank of Singapore.
The data will also provide pointers for the Federal Reserve’s meeting later this month. The Fed has cut interest rates by a full percentage point since September, to a range of 4.25 to 4.5 per cent. It is expected to hold rates steady at the January meeting, but signs of a weakening jobs market could spark debate over future pauses.
Market reaction to Friday’s figures may also be affected by US stock exchanges’ closure during normal trading hours on January 9 for President Carter’s funeral. Bond markets are also closing early on Thursday. Jennifer Hughes
Will Eurozone inflation vindicate Christine Lagarde’s optimism?
Investors and analysts will read the latest Eurozone inflation data on Tuesday for signs that support the European Central Bank’s optimistic outlook.
Last month Christine Lagarde, the ECB president, came close to calling victory over price growth pressures in the bloc, saying: “The direction of travel is clear and we expect to lower interest rates further.”
Economists polled by Reuters on average expect the data from Eurostat to show that annual headline inflation will remain at November’s level of 2.2 per cent. Core inflation, which excludes more volatile food and energy prices, is seen at 2.7 per cent.
The ECB has signalled already that it is willing to see through the slight overshooting as it is caused by a statistical quirk — a temporary drop in energy prices a year earlier — rather than underlying price trends.
Since last summer, inflation has fallen more quickly than originally expected by the central bank while economic growth continued to disappoint.
Goldman Sachs’ economists, who are slightly more pessimistic and expect an uptick to 2.4 per cent in headline inflation, are nonetheless confident that “euro area core inflation [will] cool over the upcoming months”.
Investors are pricing in yet another quarter-point rate cut in late January which would bring down borrowing costs to 2.75 per cent, the lowest level in two years. Analysts are also expecting that three to four more rate cuts will follow later this year, as the ECB is expected to bring down interest rates to a level that neither stimulates nor restricts economic activity. Olaf Storbeck
Will prices in China continue to deflate?
Chinese inflation data on Thursday will offer fresh clues on Beijing’s efforts to stave off deflationary pressures stemming from a deep property crisis.
China’s consumer prices index is expected to have grown just 0.2 per cent year on year in December, according to the consensus of economists polled by Reuters. That would be flat on November’s reading, which fell short of market forecasts of 0.5 per cent growth.
While analysts don’t believe the inflation figures fully reflect deflationary pressures in China — partly because of the way rent is calculated — the soft figures still underline challenges for the world’s second-largest economy.
China’s leaders have been trying to kick-start its economy after a three-year property market slowdown led to a collapse in credit. In response consumers reined in their spending.
“The main picture here is that there is a lot of disinflationary pressures in China which begs for more expansionary monetary policy,” said Kelly Ke-Shu Chen, a China economist at DNB Markets.
Last year the government unrolled its most aggressive stimulus since the financial crisis, cutting rates and buying government bonds to inject money into the financial system and spur consumption.
Beijing has gradually changed policy in favour of spurring household consumption. In September, financial regulators announced monetary stimulus targeting stocks and real estate.
However, Beijing’s recent efforts have only had limited impact, with “more still needed”, according to Chen.
The People’s Bank of China also plans to cut interest rates this year as it makes a historic shift to a more orthodox monetary policy to bring it closer into line with the US Federal Reserve and the European Central Bank. Mari Novik
