Will Trump attend to fiscal policy?
The Bank of England left its interest rate unchanged following a unanimous vote by the Monetary Policy Committee (MPC). The growth forecast for 2017 was raised sharply to 2.0% from 1.4% previously with a small increase to 2018’s forecast. Some members of the MPC expressed increased concerns that inflation was close to exceeding tolerance levels.
The bank also lowered its estimate of the “natural” unemployment rate to 4.5% from 5.0%, consequently there was no increase to inflation forecasts. This increased confidence that wage growth would remain subdued which would curb inflation pressures. The failure to increase inflation forecasts had a negative impact on Sterling which dipped to lows just below 1.2550 against the Dollar and as low as 1.1600 against the Euro. The UK construction PMI data was weaker than expected with a decline to five-month lows of 52.2 for January from 54.2 the previous month.
It’s the first nonfarm Friday of 2017 and the markets are pretty much at the mercy of US President Donald Trump’s executive orders and twitterings. Trump has only delivered on ‘hard’ promises so far and the Dollar bulls in the market need quick action from Trump on the fiscal front.
US jobless claims beat expectations again with a decline to 246,000 in the latest week from 260,000 previously. This in combination with the strong ADP employment figures on Wednesday means that the markets are betting on a strong nonfarm payrolls number today. Any major deviation from the 175k expected would trigger short-term volatility. The earnings data is also important for inflation and interest rate hike expectations.
Eurozone producer prices data for January comfortably beat expectations at 1.6% compared to 2016’s 0.1%. European Central Bank (ECB) council members maintain that underlying inflation remained subdued and dismissed suggestions of tighter monetary policy. They also dampened any talk of bond purchase tapering by the ECB.
Data to watch: 9am EUR Markit Services & Composite PMI. 1.30pm US Nonfarm Payroll, Unemployment Rate, Average Weekly Hours, Average Hourly Earnings. 2.45pm Markit Services & Composite PMI. 3pm ISM Non-Manufacturing PMI & Factory Orders.