After the decision of the European Central Bank, the latest macroeconomic projections for the euro area economy and data from the US labor market, the market in the next significant week`s events may look for confirmation mainly for the pace of the global economy slowdown and interest rate cuts by the FED.
Friday's US labor market data disappointed. In the wake of the previous ADP report the non-farm payrolls (NFP) report showed that employment increased by only 75,000 with market expectations of 185 000. As if that was not enough, the average hourly earnings in the US rose in May by 3.1 percent in annual terms, with a market consensus of 3.2 percent. It was the weakest increase since February this year. In other words, lower growth rate of earnings may translate into lower inflationary pressure and, as a consequence, lower inflation, which in turn may increase the likelihood of interest rate cuts. In fact, the interest rate market also started to price the cuts. January fed funds futures indicate rate of 1.675% at end of 2019, had been around 1.735% before release of data. Based on current effective fed funds rate of 2.38%, current pricing implies more than a half point reduction this year – according to Bloomberg data.
This is crucial for the data that will appear on Wednesday, June 12 at 14:30. Then we will get a reading of consumer inflation in the United States for May. Initial assumptions point to 1.9% inflation and core inflation of 2.1% on an annual basis. Any disappointment can have a significant impact on the US dollar, which has systematically begun to depreciate in the weaker readings of macroeconomic data from the US.
Meanwhile, a political game will start in Great Britain. In the next few weeks we should get to know the new leader of the Conservatives, because as of June 7, according to an earlier announcement, Theresa May will not be the leader of Conservative Party. Additionally, on Monday, June 10 at 10:30 we will get the GDP of Great Britain. In turn, on Tuesday, June 11, also at 10:30 data from the labor market will be released. Even despite the great uncertainty about brexit, the British labor market looks pretty good, with a low unemployment rate and high wage growth.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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