Macroeconomics: The Day Ahead – 5 February 2021

Written by Marc Ostwald, ADMISI’s Global Strategist & Chief Economist

  • Digesting German Orders setback, solid Australia Retail Sales volumes and expected India RBI no change; awaiting US / Canada labour and trade reports; plenty of ECB and BoE speakers, corporate earnings

  • US Payrolls: run of surveys, ADP and jobless claims ratcheting up expectations of rebound from Dec drop

  • US labour data: weak participation rate, high underemployment rate  and rising permanent layoffs a very clear reality check

  • Canada labour data: lockdown measures expected to pace further drop in Employment, resource sector may provide some offset

EVENTS PREVIEW

Even in pre-Covid19 days, the previously all conquering US labour data had long lost its cache as king of market moving data, but it will still be the main item on today’s agenda, preceded by the overnight CPI and GDP readings from Asia, Australia Retail Sales, German Factory Orders and French Trade, and accompanied by Trade data from US and Canada, the latter also seeing its labour report. A busy day for central events has the RBA’s SOMP and Lowe’s testimony along with the expected no change RBI rate decision to digest ahead of a raft of BoE and ECB speakers. Another busy day for corporate earnings will likely see the following among the headline makers: Carlsberg, Intesa SanPaolo, Linde, Estee Lauder and Regeneron. Next week has a very busy schedule of data from the UK (Q4 advance GDP and usual array of monthly activity indicators), accompanied by US and China inflation, German Trade and Industrial Production, plenty more corporate earnings, the US quarterly refunding, as well as the start of Carnival, and the Lunar New Year holidays in China and the rest of Asia. In market terms, better news on infection rates, better US labour data, hopes for more US stimulus, an optimistic spin on vaccine roll-outs (colossally uneven) is fueling yet another risk on rally, though in truth these rationales are spurious, as the primary drivers remains central bank liquidity pumping and yet more assurances this week from central banks of largesse to excess, and aided and abetted by the fact of a big injection of additional liquidity as the US Treasury slashes its cash balance at the Fed by $800 Bln during Q1.

U.S.A. – January Labour market report

Employment indices of surveys, Wednesday’s ADP report and the drops in jobless claims have resulted in a steady stream of upward revisions to the consensus estimate from an initial 30K to current 100K for headline Payrolls and 175K for Private Payrolls, with the ‘whisper’ estimate likely to be closer to 200-250K for the latter. The payrolls (aka establishment) survey also sees annual revisions published, though most will consider these to be completely moot in light of the colossal hit to labour demand due to the pandemic. The household survey continues to need to be seen through a wide angle lens, with an unchanged 6.7% Unemployment Rate expected, which deceptively low, given that the Participation Rate is seen remaining very low at 61.5% (vs. 63.4% in January 2020), and the U-6 Underemployment Rate high at 11.7% (Jan 2020 6.9%). For all that Claims were better than expected yesterday, they still showed there were a total of 17.836 Mln benefit claimants in mid-January, and the fact is that ‘only’ 12.5 Mln of the 22.2 Mln jobs lost in March and April have been recouped. Average Hourly Earnings remain very uninformative, while Average Weekly Hours are expected to remain elevated at 34.7, as production in many sectors continues to remain focused on rebuilding inventories post Covid-19.

Canada – January Unemployment

By contrast to the initial 6 months of the pandemic, where Canada’s labour data showed similar broad trends to the U.S., there is considerable divergence currently, primarily due to much stricter and broader restrictions on activity in the more heavily populated parts of Canada (above all stay at home order in Ontario, and a curfew in Quebec). The consensus looks for Employment to drop -42.9K (vs. Dec 52.7K), with much depending on whether resource sector hiring (buoyed by higher commodity prices) offsets some of the layoffs in leisure and hospitality. The Unemployment Rate is expected to remain unchanged at 8.9%.

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