- Is the US as strong as the NFP shows?
- Some positive signs from Asia
- Europe still waits for the recovery
US – how strong the labour market is?
For the whole year our baseline expectation was that the US will slow dragged lower by global headwinds and fading effects of fiscal expansion. This was the case as the ISM indices plunged and the GDP growth slowed. But the US is nowhere near the recession at the moment and in fact the latest NFP report crushed expectations. Even after accounting for returning (from a strike) GM workers, private employment increased by over 200k. The NFP data is seen as the oracle by investors because the Fed pays a lot of attention to it. However, the ADP (private estimate of the same number) was the second weakest since March 2010! We have observed previous 6 situations of large discrepancies between ADP and the NFP and in 5 out of 6 it was caused by the NFP volatility. Therefore, some caution is required when interpreting the data. Retail sales data this Friday will be a good check on strength of the US consumer.
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Same number, different worlds? Such a big difference between the NFP and the ADP never lasted for 2 months. Source: Macrobond, XTB Research
Key economic event this week: FOMC decision (Wednesday, 7:00 pm GMT)
Asia – trade stabilizes at a lower level
The headline today is a return of the Chinese imports growth in November – the first one since April. Taking a closer look we see some improvement in imports from the US, likely a goodwill sign amid Phase One negotiations but the numbers remain subdued. Bear in mind that we are speaking here about the economy that is reportedly growing by 6% pa.
JAP225 is not far from the 2018 highs. Source: xStation5
Key economic event this week: Tankan surveys in Japan (Thursday, 11:50 pm GMT)
Europe – German manufacturing keeps struggling
October was the first month of a minor improvement in German manufacturing PMI and indeed the trade data shows higher exports to Japan, France, US and (to much lesser extent) China. However, output figures point at a deepening slump. Now there are 2 ways out of here. Either a) output was low because firms trimmed inventories and higher orders will soon translate into higher output or b) higher orders are just a blip and companies simply chose not to adjust their output seeing no lasting improvement.
German manufacturing keeps contracting at alarming pace. Source: Macrobond, XTB Research
Key economic event this week: ECB meeting (Thursday, decision 12:45pm GMT, conference 1:30pm GMT)
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