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The Global Markets Weekly – 3/12/18
“Just Right” Jobs Kicks U.S. Stocks Higher, Peers Lag
Equity markets in the Eurozone and Japan remain well below January and early February levels, while U.S. markets have now fully retraced the drop from the February 2nd close, the day when an outsized wage print kicked off rate jitters, roiled the equity market and volatility products the following week. Indeed, the U.S. NASDAQ is now at fresh highs as the increasingly concentrated, less interest rate sensitive tech juggernaut grinds higher.
A month after wage inflation seemed like a lion, it appeared more like a lamb in February data. A downward revision to January hourly earnings and a mild 0.1% gain in February seemed to say that it was in part hours quirks, pay raises concentrated across managers, and a favorable year-ago base that contributed to that surprise jump in January. The noise in these single reports is always far greater than the signal, and the temptation to find meaning is strong. Stepping back, the overall message is one where the wage trend is gradually grinding higher depending on the measure, but hardly in a runaway fashion, and payroll gains strong at the moment.
On the latter, a 3m-average well over 200,000 for payrolls since December is a clearer sign of underlying strength for the U.S. economy, and favorable for the moment with respect to those rate fears. The surge suggests that effective slack remains greater than the jobless rate suggests, as trend employment growth was supposed to be slipping toward 100-150K per month, or below, by now on the thinking of the Fed and most analysts. The prime-aged 25-54 employment to population ratio remains well below the 2000s expansion average, and far below the 1995-2000 range. If that slack keeps prices and wages relatively subdued, the longer the expansion can run without an outsized Fed response, allowing earnings to remain strong and an interest rate rise contained. That remains conditional on the data and DE believes the FOMC will likely still lean toward 4 hikes this year. Subsequent market-friendly reports are no guarantee in the normal ebb-and-flow data flow.
Elsewhere, the ECB left levers on hold, left out its easing bias (that purchases could be increased in size or duration, if the inflation outlook deteriorates), but left in language that rates would remain on hold “well past” the end of QE. Moderation in Eurozone growth in Q4, PMIs off highs, and inflation clearly lagging the target suggests policy accommodation will, as in the U.S. years back, be pared back cautiously and in incremental well-telegraphed steps. More in our Focus article this week.
Coming Week’s Key Indicators and Events
|Release||DE / Consensus||Comment|
|U.S.||Feb CPI (Tu)
Feb Retail (We)
|0.1% / 0.2% m/m
0.1% / 0.3% m/m
|Energy prices a drag, some one-offs in January too. Mild acceleration in y/y rates, will pickup into midyear, then fall.
Gasoline, vehicles softer, others mixed. Mild Q1 spending, but income growth strengthening—no worries.
Jan Ind. Prod. (We)
|Appearance at IMF conference, policy hints unlikely.
PMIs softer in Jan/Feb, at high levels.
|U.K.||Spring Budget (Tu)||No major adjustments.|
|Japan||Tert. Activity (Tu)
Jan Mach Ord (We)
|-0.3%/-0.3% m/m||Investment better in recent quarters, orders to rebound after -12% in Dec.|
|China||Feb Ind. Prod. (We)
Feb Retail (We)
February TSF and M2 Data (time TBD)
|6.2% / 6.2% y/y
|IP, retail, and investment data dump all expected to show deceleration y/y, growth softening after mid-2017 lift. Growth rates under pressure ahead on debt focus, but global growth a tailwind.|