Following Wednesday’s blowout ADP report, which printed some 40K jobs higher than the highest estimate, the only possibility for tomorrow’s nonfarm payroll report, the last major economic data point before the Fed’s March 15th rate hike announcement, is to disappoint, especially in terms of wages (which in light of the recent downward revision of Q1 GDP by the Atlanta Fed to 1.2% is not out of the question). That possibility, however, is slim to none if one looks at Wall Street’s forecasts, where virtually every sellside analyst boosted their NFP estimate in the hours after the ADP number. Still, with the market pricing in a 100% chance of a rate hike, only a very disappointing – think less than 100K – report will derail the Fed from hiking for the second time in three meetings.
Here are some of the more notable forecasts for tomorrow’s number::
- Westpac 170K
- Bank of America 185K
- BNP 185K
- Barclays 200K
- Deutsche Bank 200K
- Goldman Sachs 215K
- Nomura 235K
- Morgan Stanley 250K
Putting it all together, here is what Wall Street expects from the February payrolls report due out at 8:30am ET tomorrow morning:
- Change in Nonfarm Payrolls: Exp. 193K (Prey. 227K, Dec. 157K)
- Unemployment Rate Exp. 4.70% (Prey. 4.80%, Dec. 4.70%)
- Average Hourly Earnings M/M Exp. 0.30% (Prey. 0.10%, Dec. 0.20%)
According to the document, the deficit-to-GDP ratio is expected to be at the level of 3 percent, while the registered urban unemployment rate will reach 4.5 percent.
The GDP growth in China is expected to amount to 6.5 percent or more in 2017, which has been the worst indicator in the past 26 years.
“The GDP will grow by about 6.5 percent but in practice we will try to achieve better results,” according to the report by China’s National Development and Reform Commission (NDRC), published before the opening of the National People’s Congress.
On Saturday, China’s National People’s Congress (NPC) announced that Beijing will increase by around 7 percent this year, as compared to last year’s $146 billion.
According to China’s National Statistics Bureau, the GDP growth declined to 6.7 percent in 2016 from 6.9 percent in 2015, which has been the worst results in the past 26 years.
China’s National People’s Congress gets underway this weekend, and investors will get an update on the health of the US labour market.
Here’s what to watch in the coming days.
While much of the discussion takes place in closed-door meetings, economists are paying attention to the Government Work Report and the 2017 growth target. Jian Chang, economist at Barclays, said their base case is for 6.5 per cent growth. He also expects the government to maintain the budget deficit at 3 per cent and inflation target at 3 per cent.
On the politics front, China-watchers will keep their eyes peeled for clues on who could make it to China’s 25-member Politburo and possibly the Politburo Standing Committee (PSC), following a reshuffle of some senior provincial and central government leaders, particularly with the 19th Party Congress scheduled for this fall.
UK chancellor Philip Hammond will present his first budget on Wednesday, and economists expect it to show a decline in gilt issuance.
“The UK economy has outperformed earlier forecasts, and so there should be a bit more revenue to play with, leading to the first decline in borrowing in 3 years,” strategists at TD Securities said. “But we see a cautious budget with few giveaways as the UK approaches Brexit.”
European Central Bank
Following Yellen’s speech which did not throw any curve balls to this week’s sharply revised, hawkish narrative by her FOMC peers, a March rate hike – according to Goldman – appears to be in the books. In a note moments ago by Goldman’s Jan Hatzius, the investment bank said that the bottom line is that “Fed Chair Yellen said today that a rate increase at the March FOMC meeting “would likely be appropriate”, as long as incoming data continue to confirm officials’ outlook. We see this as a strong signal for action at the upcoming meeting, and have raised our subjective odds of a hike to 95%.”
Goldman’s key points:
1. In remarks this afternoon, Fed Chair Yellen indicated a readiness to raise the funds rate at the FOMC’s March 14-15 meeting in fairly explicit language. She said that as long as “employment and inflation are continuing to evolve in line with” officials’ expectations, “a further adjustment of the federal funds rate would likely be appropriate”. As a result, we now see a hike at the March meeting as close to a done deal, and have raised our subjective probability to 95%.
2. The remainder of Chair Yellen’s speech focused on the Fed’s post-crisis monetary policy strategy in general, and did not discuss incoming data in much detail. However, given constructive comments about current economic conditions from many Fed officials this week—including from Vice Chair Fischer at today’s US Monetary Policy Forum—we think committee members will see recent news as consistent with their outlook, and therefore supportive of further tightening. At this stage, the February employment report—to be released next Friday—may have more bearing on the committee’s guidance about action after the March meeting than on its decision whether to hike this month.
The number of Americans applying for first-time unemployment benefits fell to a near 44- year low last week, reinforcing the picture painted by recent economic indicators of continued strength in the US labor market.
US jobless claims fell by 19,000 to 223,000 in the week ending February 25, according to the Labour Department — confounding market expectations for a rise to 245,000.
The figures would represent the lowest level of weekly claims since the week of March 31 1973.
The lack of an uptick in jobless claims further underscores the strength of the US labour market, one of the primary considerations weighed by the Federal Reserve as it readies to raise interest rates perhaps as soon as this month.
A novel dilemma for the European Central Bank to contend with: above target inflation.
Prices in the single currency area have climbed by 2 per cent on the year for the first time in over four years, posing a fresh headache for the ECB’s dovish policymakers who will mark their two-year quantitative easing anniversary next week.
At the ECB’s latest meeting next Thursday, president Mario Draghi will face the task of convincing his more hawkish colleagues that the current leap in annual prices – from 1.8 per cent in January – is unlikely to be sustained having been driven by volatile energy costs. The central bank, which has been battling with more than three years of low prices, targets inflation of just under 2 per cent.
Despite the recent upsurge in inflation driven by higher oil prices Pete Vanden Houte at ING thinks inflation will begin to stabilise over the coming months. If anything, he says the ECB will opt to let inflation run above target to compensate for years of weak prices:
There is little doubt that the ECB will continue to be criticized for its loose monetary policy, especially in the core countries. But the bank will no doubt recall that the inflation target has to be reached over the medium term and for the whole of the Eurozone. If anything the ECB is more likely to err on the side of inflation, to compensate for the fact that consumer price increases have significantly undershot the ECB’s target for now 4 years in a row.
We therefore don’t see any change in monetary policy this year. However, in the third quarter, the ECB might announce its exit strategy, which in our view will probably entail a new extension of the QE program until mid-2018, but with some tapering included.
Moody’s on Friday became the latest ratings agency to lift its outlook on Russia’s credit rating, upgrading it from ‘negative’ to ‘stable’, citing both a fiscal strategy — that is expected to lower the country’s dependence on energy and replenish its savings — and the gradual economic recovery.
The ratings agency had confirmed Russia’s Ba1 rating, which is one notch below investment grade, in April 2016, but assigned it a negative outlook at the time to reflect an erosion of the government’s fiscal savings amid a downturn in crude prices. But on Friday, it said the recovery in the country’s economy following a nearly two-year long recession, alongside the fiscal consolidation strategy, have eased the risks that it had identified last year.
Russia’s deficit-to-GDP ratio is now forecast to narrow by roughly one percentage point per year between 2017 and 2019 and Moody’s said this new target was “achievable” because the government’s “oil price and revenue assumptions are sufficiently conservative”.
Moody’s now believes that the downside risks identified in April 2016 have diminished to a level consistent with a stable outlook. The stabilization of the rating outlook partly reflects external events, and in particular the increase in oil prices to a level consistent with the government’s budget assumptions. The stable outlook also reflects the plans the government has put in place to consolidate its finances over the medium term, and the slow recovery in the economy following almost two years of recession.
Rival raters S&P and Fitch have also boosted their outlook on the country in recent months, as external risks to the oil-producing nation ease.
Stocks jumped to new record highs and the Dow shot past 20,600 on Wednesday after more reports showed the U.S. economy continues to strengthen.
The Dow Jones industrial average climbed 107 points, up 0.5% to a new closing high of 20,611.86.
Also building upon their record highs set in the previous session were the S&P 500 and Nasdaq composite, up 0.5% to 2349.25 and 0.6% to 5819.44, respectively.
The encouraging data could push the Federal Reserve to raise interest rates more aggressively from the record lows marked during the Great Recession.
Wednesday’s economic reports give the Federal Reserve more encouragement to raise interest rates, and economists said the possibility is increasing that it may happen at the central bank’s next meeting in March. Retailers had stronger sales in January than economists expected, and inflation at the consumer level was the highest in years. Consumer prices rose 2.5% in January from a year earlier, the highest rate since March 2012.
Fed Chair Janet Yellen said in testimony before a Congressional committee that the strengthening job market and a modest move higher in inflation should warrant continued, gradual increases in interest rates, echoing her comments from a day earlier. The central bank raised rates in December for just the second time in a decade, after keeping rates at nearly zero to help lift the economy out of the Great Recession.
China’s consumer inflation rate quickened to 2.5 percent in January from a year earlier, the highest since May 2014 and beating market expectations.
Analysts polled by Reuters had predicted the consumer price index (CPI) would rise 2.4 percent, the biggest gain in nearly three years, versus a 2.1 percent gain in December.
The producer price index (PPI) rose the fastest since August 2011.
The market had expected producer prices to rise 6.3 percent on an annual basis.