US provided the major data of the past week
U.S. Nonfarm payrolls increased by 261,000 jobs in October; this was the largest gain since July 2016. However, it was below economists’ expectations for an increase of 310,000 jobs.
Good news was found in the revision to the September data which was revised to show a gain of 18,000 jobs instead of a decline of 33,000 that was as previously reported.
It was clear that recent reports were affected by the impact of the recent severe hurricanes and it was no surprise to see construction payrolls gain 11,000 in October lifted by hiring related to the clean-up and rebuilding activities in the wake of the hurricanes.
There were a few clouds in the data set as average hourly earnings slipped by one cent, leaving them unchanged in percentage terms.
This was explained by the return to work of the lower-paid industry workers. In the round, this meant the YoY change was 2.4%; the smallest since February 2016. Wages gained though, adding 0.5% in September so boosting the annual increase in that month to 2.9%.
The lukewarm pace of wage growth supports the view that inflation will continue to undershoot the Fed’s 2.0% target and there may develop a degree of concern over consumer spending, which appears to have been largely supported by drawing down savings this year.
Still, this data set supported the Fed’s assessment on Wednesday that the employment market has strengthened. Therefore, there are no reasons to change expectations the Fed will raise interest rates in December. The Fed has lifted rates twice this year.
It is now just over a year since Donald Trump won the Presidency and even as he and the Republican-led Congress have struggled to enact their economic programme one can see that GDP growth has looked steady as the economy grew at a 3.0% annualised rate in Q3.
Republicans in the House of Representatives on Thursday launched a tax reform bill proposing the reduction of corporation tax to 20.0%, down from 35.0%, reducing tax rates on individuals and families and curtailing several tax breaks. The plan has not received universal praise in the business community as it has been opposed by small businesses, estate agents, and homebuilders.
In the UK
The Bank of England (BoE) raised interest rates for the first time in more than 10 years on Thursday.
The BoE’s Monetary Policy Committee (MPC) saw the nine rate-setters vote 7-2 to increase the Base Rate to 0.50% from 0.25%. This unwound the emergency cut made in August 2016 after the Brexit vote.
It was the first BoE hike since 2007 before the global financial crisis tipped Britain into a deep recession.
The BoE indicated that it expected only “very gradual” further increases as the UK draws nearer leaving the European Union. This sent the Pound down sharply against the Dollar and Euro.
At noon on Thursday, November 2nd GBPUSD 1.3220 and EURGBP 0.8776
High of the week on Friday, November 3rd GBPUSD 1.3041 and EURGBP 0.8937
The week ahead
Asian shares stepped back from recent decade highs as the week’s trading began. The major currency pairs held in tight ranges and oil jumped to a more than two-year peak as Saudi Arabia’s crown prince cemented his power through an anti-corruption crackdown.
U.S. West Texas Intermediate (WTI) crude reached $56 per barrel in early trading, the highest since July 2015, and was at $55.86 at 06:25 GMT. WTI is 33% higher than its 2017 lows.
Gold prices dipped in Asia on Monday despite heightened political risk in the Middle East. Gold futures for December delivery eased 0.02% to $1,268.97 a Troy Ounce on the Comex division of the New York Mercantile Exchange.
Looking ahead, it is a light week for headline economic data as only the only the UK’s manufacturing figure for September merit real attention. Where 0.3% is expected from 0.4% before.
Central bankers will be on the wires as on Monday Mario Draghi, President of the ECB will speak and as always, his comments may determine a short-term positive or negative trend.
Later in the day the Fed Chair, Janet Yellen will speak, however, some of the spotlight for her is fading after President Trump nominated Jerome Powell as the next Fed Chair. He is expected to stay the course on monetary policy. He is a fairly orthodox pick overall. His views on monetary policy, are like those of the current Fed chair, Janet Yellen. What sets him apart from Yellen, and perhaps what made him an appealing candidate to President Trump, are his more market-oriented views on financial regulation. That should be good for equities in the medium-term.
Have a great week!
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