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Friday preview: US payrolls and earnings to increase Fed 'head scratching'

By Oliver Haill

Date: Thursday 04 Jan 2018

LONDON (ShareCast) - (ShareCast News) - Friday is US non-farm payrolls day, with the numbers coming hot on the heels of news of a split in the Federal Reserve over the pace of interest rate rises this year.
Minutes released earlier in the week from the Federal Reserve's latest meeting showed officials were divided over the prospect of three rate hikes this year.

Following the third interest rate rise last month, minutes from the 12-13 December meeting revealed that some officials thought the three 25-basis points rate increases projected for this year might be too aggressive.

The minutes also suggested that the Fed will continue to take a gradual approach to lifting rates, although this could accelerate if the pace of inflation picks up. In addition, Fed officials discussed the possibility that President Trump's tax changes could cause inflation pressures to rise.

"With the composition of the FOMC changing over the coming months, it's difficult to take too much of value away from the minutes. Particularly when members acknowledge that the economic benefit of the tax cuts is unknown, with a number of people outside the central bank arguing that it will be small and short-lived," assured analyst Craig Erlam at Oanda.

Investors the world over will be looking for the number of US jobs added in December and the average hourly earnings data published alongside, for a further hint and how policy might move in coming months.

The midweek consensus estimates for NFP was for just under 190,000 jobs, with the unemployment rate at 4.1% and hourly earnings to grow 0.3% month-on-month from the 0.2% previous rate.

A day in advance, the ADP measure of private payrolls showed a 250,000 gain for December, which lifted expectations for Friday's reading to be higher than the recent consensus.

Pantheon Macroeconomics was expecting a solid 210K increase in payrolls, consistent with survey evidence, and predicted the unemployment rate should dip a tenth to a new cycle low of 4.0%.

Rabobank said if the consensus is hit, that would suggest the official data should also be back around its pre-hurricane trend.

"The ongoing strength in the labour market has been one of the pieces of the Fed's inflation puzzle. Despite the unemployment rate being well below the natural level estimated by the Fed, this has not yet translated into solid wage-driven inflation dynamics," Rabobank said.

"Although it remains to be seen whether employment will continue its strong performance this year, further labour market strength should certainly add to the head-scratching at the Federal Reserve. Will inflation finally pick up as a result of a tight labour market? Or is the labour market not at tight as it seems, and is there still a long way to go, as labour market participation remains low and underemployment remains an issue?"



Friday January 05

INTERNATIONAL ECONOMIC ANNOUNCEMENTS
Non-Farm Payrolls (US) (13:30)
Producer Price Index (EU) (10:00)
Retail Sales (GER) (07:00)
Unemployment Rate (US) (13:30)

UK ECONOMIC ANNOUNCEMENTS
BRC Shop Price Index (00:01)

EGMS
Alpha Real Trust Ltd.

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British Empire Trust

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Biffa, Big Yellow Group, Clipper Logistics , Homeserve, JD Sports Fashion, Montanaro European Smaller Companies Trust, Renewi , Severn Trent, Tate & Lyle, Ten Entertainment Group , Triad Group, VP

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Blackrock North American Income Trust , Land Securities Group, Real Estate Credit Investments Ltd