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It’s NonFarm Payrolls day, but wages likely to steal the limelight

It’s NonFarm Payrolls day, but wages likely to steal the limelight

The US ADP employment increase was lower than expected, with private-sector job growth the culprit. Initial jobless claims dropped sharply, close to the lowest level for 43 years, however the data may have been distorted by the holidays.

The ISM non-manufacturing report was slightly stronger than expected. Factory orders and the production index held above 60.0, but there was a decline in the employment index to 53.8 from 58.2 previously. Overall confidence in the employment report to be released today has dipped further. The Euro rallied to the 1.0600 area vs the US Dollar, whilst the Pound rose to 1.2430 against the US currency.

Today’s nonfarm payroll report will inevitably trigger short-term volatility, while the report’s potential inflation implications will be important for longer-term trends. If the data shows strong earnings growth this would increase pressure for the Federal Reserve to quickly tighten policy again. Weak data would reduce speculation over tightening.

The Pound has now surrendered most of yesterday’s gains and retreated to the 1.2380 level against the Dollar and has also weakened slightly against the Euro. The UK services sector PMI index increased to 56.2 for December from 55.2, stronger than expected, and was the strongest reading for 17 months. There was improvement in business confidence as Sterling’s competitive exchange rate helped confidence and employment.

Bank of England Chief Economist Haldane stated that consumer spending was likely to slow in 2017 and that a neutral monetary policy was appropriate. Furthermore, there was the strongest increase in prices since April 2011 which will likely herald inflation rate rises on the horizon. Higher inflation would increase pressure on the bank to shift to a tightening policy, which would increase speculation of an interest rate hike.

In the EU, the Producer Price Index for November came in better than expected, as wholesale inflation rose by 0.3% in the month, and by 0.1%in the year, the first annual gain for over three years.

Data to watch: 1.30pm US Dec NonFarm payrolls, Unemployment Rate, Average Hourly Earnings, Labour Force Participation Rate & Trade Balance. 3pm Factory Orders.

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