March 08, 2024

“Non-farm payrolls is always a market mover and markets will be watching closely today for its implications for the Fed’s ability to start easing policy this summer. Last month’s double-consensus beat triggered a wave of dollar strength as concerns mounted that the Fed would need to hold off.”

Tim Hallinan – Trading Director

Main Headlines

In a passionate State of the Union speech on Thursday, President Joe Biden made his case for re-election, accusing Donald Trump of endangering democracy and being overly submissive to Russia. The speech, watched closely for both the 81-year-old president’s delivery and his policy agenda, underscored the sharp political divisions shaping the nation.

Economists moved to criticise British Chancellor Hunt’s new pre-election budget plan yesterday, questioning the feasibility of its underlying assumptions and expressing concerns about the future of public services. Many have argued that the assumptions relied upon in the plan were unrealistic and lacked credibility, based on analyses from various think tanks and major financial institutions.

GBP

The UK macro diary has been all but empty this week, yet sterling has become the best performing G10 currency this year. While US and eurozone inflation gauges have inched into the 2-3% range, British headline inflation still stands at 4% and wage growth is still above 5%, amid repeated concerns at the Bank of England about inflationary persistence, and unwinding stubborn, second-round domestic pressures now that goods prices have normalised. This has kept sterling buoyed as Fed Chair Powell and ECB President Lagarde have kept the door open for a rate cut as soon as June. On the data front, US payrolls will be the biggest determinant of market direction today, with investors waiting for some domestic cues from labour market and GDP data in the first half of next week.

EUR

The euro is set for its best week since December, despite initially dipping yesterday as the ECB sharply revised down its inflation projections for this year from 2.7% to 2.4%. Lagarde boosted expectations for the June cut, saying that policymakers would have a much larger pile of evidence by that meeting which could give them that extra confidence required to begin easing rates. The comment that markets were converging more closely with the policymaker outlook all but endorsed this outcome and pushed market pricing for June above 90%, although the continued emphasis on wage and labour market indicators took the sting out of the downward move for the euro. It was weakness on the dollar side that ultimately drove a higher close for EUR/USD, however. Revised Q4 GDP comes this morning alongside some final employment change data for the bloc, but are likely to have any meaningful impact.

USD

Powell’s confidence in the Fed’s ability to cut rates this year had set the dollar up for its sharpest weekly decline in almost three months – the final test will come from non-farm payrolls this afternoon. After testimony to Congress on Wednesday, Powell turned to the Senate yesterday to continue the questioning on monetary policy, where he suggested that the Fed is getting ever closer to the level of confidence required to act on cutting rates. His language this week has generally been tilted more to the dovish side than many had expected, seemingly undeterred by the strong data that landed last month. Non-farm payrolls, of course, with its 353K blowout for January, is this week’s highlight this afternoon. A much more usual figure of 198K is expected, although the labour data has clearly had a tendency to surprise to the upside of late – markets will really be asking whether the strength of the US economy is likely to be a serious impediment to kicking off rate cuts in Q2.

Markets

Enthusiastic investors, buoyed by rate cut hopes, are bidding up just about everything except the dollar right now. The S&P 500 and the Nasdaq both reached fresh highs, along with gold and the Stoxx 600, while Asian stocks leapt to a seven-month peak.

Main Economic Events (All Times CET)

1:00pm: Fed’s Williams speaks
2:30pm: Canadian Employment Change
2:30pm: US Non-Farm Payrolls and Hourly Earnings

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