RATESWATCH : Giddy anticipation in the US , anti-climax in the UK ......

Friday 7th August 2015

 RATESWATCH : Giddy anticipation in the US , anti-climax in the UK ......

US

Ref : "Here's what you need to know about Friday's jobs report" , Bloomberg online

To listen to some commentators, one might think that the bearing it will have on the timing of the rate hike makes today's employment data for July one of the most important announcements of our times. In that it will be key in deciding when to start lifting after such a long period of near-zero rates, it is certainly significant but when the economic histories of our era come to be written one doubts whether the Fed hikes in September or December will merit much more than a footnote. Still, it's got everybody's attention right now and will have short-term market effects.

 So, what to look for :

 Non-Farm Payrolls : Reuters consensus estimate +223,000 . It's thought that any number above 200,000 will be enough for the hawks to view it as supportive of a September move.

  Average Hourly Earnings : Consensus estimate +0.2 %. Keenly watched, particularly after last month's disappointing reading of unchanged.

 Headline Unemployment Rate : Consensus estimate unchanged at 5.3% . An unchanged number will be good enough for the hawks who argue that the figure is as near to the Fed's target range for sustainable unemployment of 5.0 -5.2% as to make no difference.

 Expect knee-jerk reactions to the data. As ever, strong data implies an earlier hike and therefore a stronger dollar and a rise in bond yields (and a fall in prices). Weak data implies ...... well, the opposite of course.

UK

 Ref : All UK media outlets, and most others...

What key points should we lift from the Bank of England's "Super Thursday" announcement of its unchanged decision on rates, the minutes of the 9-member Monetary Policy Meeting that came to the decision, and the Quarterly Inflation Report ?

 Most headlines lead with the fact that the decision to hold the base rate at 0.5% (for the 78th time!)was reached with an 8 - 1 majority. Nobody expected a rise, but most expected at least 2 dissenters. Consequently, the statement was viewed as "doveish".... sterling immediately dropped 1 cent against the US$ and UK Gilt yields fell (and prices rose).

Why no more than one hawkish voice ? Whilst the B of E maintains its views on the prospects of medium-term inflation, in the near-term the falling price of oil and most other commodities may even push inflation back to zero, or even into negative territory. Wage growth can give significant impetus to inflation but this is at least partially offset by better productivity numbers , an area that has been of some concern to the B of E up to now. But in many eyes the most important factor was the strength of sterling, a view it's hard to argue with. Currency strength drags on the economy through its effects on exports and its increased buying power suppresses inflation. 

 So we are now in the betting on a UK rate rise ? May is favourite once again.

 

NOTE : There's been some adverse reaction to the B of E's new practice of putting so much data out in one hit. Rather than calling it "Super Thursday", others are referring to it as a "data dump". Not too many people will lose sleep at the thought of analysts having to digest so much information instantaneously, but there is a more relevant point.

 The argument is that it contributes to the confusion already engendered by mixed messages being sent by the B of E, and in particular by its governor, Mark Carney. Some say that by signalling a rate rise in the pipeline so often and for so long, and then revealing that we are little closer to it, is not giving the markets the direction they need.

It's hard to buy into that argument .... it's right that central bankers should alert the markets to possible dangers, their plans to deal with them and their thinking in general. Such a practice reduces the likelihood of central bank action coming as a shock to the system. Moreover, Mr Carney has been at pains to stress that future action will be "data-dependent". It's as if some traders want him to give guarantees as to the timing of rate rises etc.. Anyway, his methods are being compared unfavourably with those of his US counterpart Fed Chairwoman Janet Yellen, though frankly from this angle it's difficult to discern much of a difference.