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Friday preview: US hourly earnings data could be key

By Oliver Haill

Date: Thursday 05 Apr 2018

LONDON (ShareCast) - (ShareCast News) - Friday's monthly US jobs data will be closely watched for a spike in wages that could change rate hike expectations and move all sorts of markets, while there are no FTSE 350 company results expected.
The non-farm payrolls report may not keep markets on tenterhooks as it has done, given low unemployment, the China trade dispute and recent comments from Federal Reserve rate setters. This included St Louis Fed President James Bullard saying there should be no further rate hikes in 2018.

Economists believe the US economy generated 185,000-190,000 jobs in March, following a jump of 313,000 in February, which is easily more than what is needed for the rate of unemployment to continue trending lower - barring increases in the labour force participation rate. The rate of unemployment is expected to fall to a fresh 17-year low of 4.0%.

More important, given the high employment, will be the rate of growth in average hourly earnings, which is seen picking up to 2.7% from 2.6% on a year-on-year basis.

Morgan Stanley forecast 180,000 net new jobs will have been generated, with unemployment holding steady at 4.1% and a 0.2% monthly increase in average hourly earnings, raising the year-over-year rate to 2.7% from 2.6%.

"A data release in line with our expectation would be a fairly benign outcome that would not likely sway market expectations for monetary policy in either direction," economist Ellen Zentner said.

Previously strong hourly earnings numbers have fed straight through to inflation expectations, noted market strategist David Morrison at GKFX, raising concerns that the Fed may raise their anticipated pace of monetary tightening, as seen in early February's spike to an eight-year high of 2.9% alongside a better-than-expected payroll report, which helped trigger a spike in bond yields and volatility, catalysing the biggest sell-off in global equities in two years.

Last month earnings dropped back sharply while payrolls soared, helping contribute to an equities rally, which has since faded.

If the hourly wages number spikes up to 2.8/2.9%, Morrison said investors will again factor in a pick-up in the pace of rate hikes from the Fed. "The dollar should spike higher, sending the Dollar Index back above resistance around the 90.00 level. We may see an initial rally in stock indices, but the danger is that this fades as investors once again focus on tighter monetary policy from the Federal Reserve.

"So, bulls will be hoping that wage growth is benign, staying around 2.6%. This should help to calm markets and give asset prices a lift. But it may not be enough on its own to cancel out all investor concerns."

RBC Capital Markets said the March employment report will be far from a "clean" read on the state of the US labour market, with weather likely to have complicated the issue. "Therefore, we would take data on hours and labor force flows, in particular, with a grain of salt. Weather should not, however, impact the nonfarm payroll headcount numbers."

China will be on holiday for the Qingming, or tomb-sweeping, festival, when families traditionally visit and tidy their ancestral tombs.

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