Eurozone Data Mixed as Jobs Day Approaches

The eurozone hovers just above stagnation; trade sentiment sours again; monthly US labour market data in focus today

Previous Day's Market Highlights

When an economy is struggling as much as the eurozone is at the moment, even small wins should be celebrated.

Thursday gave market participants their first glimpse at third quarter economic growth figures, which, while still pretty dismal, were not as bad as had been feared. Data showed the eurozone economy grew at 0.2% on a QoQ basis for the second straight quarter, implying the economy bumbling along, just evading stagnation. As expected, the causes of the economic slowdown are those all too familiar factors of ongoing uncertainties denting business investment, and a slowdown in the manufacturing sector. These issues do, however, appear relatively contained at present, though risks to the outlook remain firmly tilted to the downside. On a YoY basis, growth was less rosy at just 1.1%, the slowest pace of expansion since the final quarter of 2013. This evidences how fragile economic momentum is at present, with leading indicators (such as PMI surveys) now set to be closely watched for any signs of further slowing into year-end.

Growth data wasn't Thursday's only notable report from the euro area, with October's flash CPI figures also released. The data - which put headline inflation at just 0.7% YoY, the slowest pace in almost 3 years - shows the pace of price increases remains incredibly benign, and significantly below the ECB's target; exemplifying the problems that will face incoming President Lagarde, who takes up the reigns today. The dip in headline inflation came largely as a result of a fall in energy prices, hence the resilience of the core inflation measure, at 1.1% YoY. September's unemployment figures were also released, showing the jobless rate remaining at a post-crisis low of 7.5%.

For the euro, the mixed slate of releases resulted in surprisingly little volatility, with negative economic surprises largely priced in, and market participants already incredibly pessimistic on the outlook for the economy. The common currency ended the day unchanged against the dollar, and flat against most other G10s.

Speaking of the greenback, concerns over both Sino-US trade relations and the potential impeachment of President Trump exerted pressure. Bloomberg reports that China are doubtful a long-term trade deal is possible with President Trump dampened the attraction of the dollar, and risk sentiment, in early trading. Risk appetite remained subdued throughout the day, with upbeat comments from President Trump and National Economic Advisor Kudlow failing to turnaround sentiment - it is, and has been for some time, evident that market participants are now paying little attention to such remarks from the Trump Administration, which are a fairly obvious attempt at manipulating the market.

Meanwhile, on Capitol Hill, the Democrat-led House of Representatives (the lower house of the US legislature) voted in favour of deeper impeachment measures, including a potential formal public investigation, which could result in Articles of Impeachment being drafted. While that remains a distant prospect, and impeachment even more unlikely while the GOP hold the Senate, the news did little to aid risk appetite.

As a result, the dollar settled 0.3% lower against a basket of peers, while the Aussie and Kiwi dollars dipped by a similar amount. In contrast, the safe-haven Japanese yen saw significant demand, gaining 0.65%, while the Swiss franc also benefitted, adding a shade under 0.2%. Risk aversion was also evident in the fixed income market, with Treasury yields falling by between 7 and 10bps across the curve. 

Back in the UK, politics once again dominated for the pound, with opinion polling for the upcoming general election beginning to drive price action. A poll conducted by Ipsos Mori showed the Conservatives, polling at 41%, having a 17-point lead over Labour, on 24%. While it is still very early in the campaign, and opinion polls should always be taken with a pinch of salt, the poll served to steady some nerves as market participants grew a tad more optimistic of a Conservative victory. As a result of the optimism, sterling ended the day 0.35% higher against both the dollar and euro.

Away from FX, equity markets declined as trade concerns exerted pressure. In Europe, the pan-continental Stoxx 600 closed 0.45% lower, while the US benchmark S&P 500 shed 0.3%. Finally, oil prices continued to come under pressure -- as a result of both trade concerns and rising US inventories. Both Brent and WTI shed 1.6% on the day, though both blends were on track for a monthly gain.

Currency Pairing 08:00 Today Vs 08:00 Yesterday Four-Week High Four-Week Low % Change
GBP/EUR 1.1615 1.1661 1.1086 4.93%
GBP/USD 1.2965 1.3012 1.2195 6.28%
EUR/USD 1.1165 1.1179 1.0940 2.14%
GBP/AUD 1.8765 1.9094 1.8076 5.33%
GBP/NZD 2.0150 2.0559 1.9311 6.07%
GBP/CAD 1.7045 1.7095 1.6253 4.93%

Today's Market Highlights

As always, the first Friday of the month means only one thing for financial markets - jobs day. The monthly US labour market report will be released this afternoon, recording the employment situation in October. Headline nonfarm payrolls are expected to show hiring continuing to slow, with a consensus estimate for the US economy to have added only 89,000 jobs last month, well below the 3-month average of 154,000, and representing the slowest pace of hiring since May. Indicators leading up to the payrolls report have also been on the soft side, with Wednesday's ADP data showing the economy adding just 125,000 positions. It is becoming increasingly clear that the slowdown in hiring, while originally thought to be due to supply constraints, is now due to a decrease in demand for labour, with hiring declining as the pace of economic expansion slows. It is, however, important to note, that today's figures will likely be skewed to the downside by the impact of striking General Motors workers (approx. 46k), which could shave thousands off the headline payrolls number. As always, in addition to October's jobs number, revisions to the previous two months' data will be closely watched in case of any surprises.

Meanwhile, as well as the headline payrolls figure, market participants will closely examine the unemployment rate and earnings data to gauge the broader health of the jobs market. Unemployment is set to tick up to 3.6%, slightly above September's multi-decade low, while average hourly earnings are expected to increase at 3.0% YoY, also modestly above September's pace. Given that the headline payrolls figure will likely be skewed by the GM strikes, other aspects of the report will be of increased importance to gauge the state of the jobs market. Further signs of softness, particularly in wages, are likely to be of concern for markets, and perhaps indicative of a more deep-rooted slowdown. This will also be of concern to the FOMC, who will be paying extremely close attention to all incoming data points, as policymakers examine the effects of recent 'insurance' cuts on the US economy.

Elsewhere today, the health of the global manufacturing sector will be in focus, as October's PMI surveys begin to filter in. From the UK, the industry is set to have contracted for a 6th straight month, with the PMI expected at 48.1 - significantly below the crucial 50.0 breakeven between expansion and contraction. From the US, October's ISM activity gauge is also set to remain in contraction, set to print 48.9 - a modest increase on last month's level.

Turning to monetary policy, a host of Federal Reserve policymakers are scheduled to speak. Of most interest are likely to be comments from Fed Vice Chair Clarida, along with dovish New York Fed President Williams, with both officials likely to reiterate the FOMC's stance of pausing rate cuts and assessing the impact that the previously delivered 'insurance' cuts are having on the US economy. A host of other FOMC members are also due to speak, including Quarles and Kaplan, while Boston Fed President Rosengren and Kansas City Fed President George will likely issue statements explaining their dissent at Wednesday's policy meeting.

Finally, looking ahead to next week, monetary policy will remain in focus, with rate decisions due from the UK and Australia. The Bank of England (BoE) are almost certain to leave rates on hold, though may strike a more downbeat tone on the UK's economic prospects as uncertainties persist. Down under, the RBA will also likely keep rates on hold, while maintaining an easing bias, with further policy easing likely in the first half of next year.

On the data front, next week's calendar sees the usual round of services PMI surveys, which will be closely watched for any signs that ongoing weakness in the manufacturing sector is spilling-over into other areas of the economy. Other focuses include labour market reports from Canada and New Zealand, in addition to preliminary US consumer sentiment data.

Today's Economic Calendar

Time Currency Release Consensus Previous
9.30am GBP Manufacturing PMI (Oct) 48.1 48.3
12.30pm USD Nonfarm Payrolls (Oct) 89k 136k
12.30pm USD Unemployment Rate (Oct) 3.6% 3.5%
12.30pm USD Average Hourly Earnings (YoY - Oct) 3.0% 2.9%
12.30pm USD Average Hourly Earnings (MoM - Oct) 0.3% 0.0%
14.00pm USD ISM Manufacturing PMI (Oct) 48.9 47.8