Payrolls day in the US
Some semblance of relative calm returned to UK markets yesterday. Bond yields were broadly steady, equities recovered some ground, and sterling retreated from its lows against the dollar and the euro but remains close to them trading at about $1.23 and £0.8380 respectively this morning. The euro is little changed against the US currency, trading at $1.03. Today’s key economic data release is the US employment (payrolls) report for December. A stronger than expected report will almost certainly see the dollar extend its recent gains; a weaker than expected report may see it lose some ground.
UK government 10-year bond yields ended largely unchanged yesterday, having risen by about 20bps over the previous two trading sessions. Equivalent German yields were marginally higher on the day, while US 10-year yields were flat. In equity markets, the FTSE 250 closed 0.3% higher having shed 2% on Wednesday, while European stocks added around 0.5% (US equity markets were closed yesterday).
Bank of England MPC member Breeden says she supports a “gradual approach to the withdrawal of (monetary) policy restrictiveness”, and expects interest rates (currently 4.75%) to “come down over time as the effects of the large (inflation) shocks continue to abate.” The market is currently pricing in about 50bps worth of cuts this year.
In the Euro area, retail sales rose marginally in November (+0.1%) after falling by 0.3% in October, and followed two months of strong gains in August-September. This, together with the latest PMI data, suggests that GDP growth in the zone – which picked up in Q3 (to 0.4% q-o-q) on the back of stronger consumer spending – fell back again in the final quarter of 2024.
Today’s employment report in the US is expected to show the economy added 165k jobs in December, according to the consensus forecast, following a gain of 227k in November. The unemployment rate is seen remaining at 4.2%, while the annual rate of growth in hourly earnings is also expected to have remained steady last month at 4%.
Other economic data due today include the the University of Michigan survey of consumer confidence/inflation expectations in the US.