The UK labour market report for December

Market Movers

Today we get the minutes from the FOMC meeting of 26-27 January. This will give us a broader insight into the different views of the FOMC members. It could attract some attention as Yellen’s testimony was more or less just a repetition of the January FOMC statement. However, since the meeting, uncertainty in financial markets and the risk of a systemic crisis have both increased which, in our view, should keep the Fed on hold until the September meeting.
US manufacturing production and capacity utilisation for January are due today and will also attract attention given the current weakness in manufacturing indicators like ISM. Finally, housing starts and permits are due for release.
The UK labour market report for December is likely to show that the market continued to tighten. We forecast that the unemployment rate (3M) fell to 5.0% from 5.1%. We estimate that the annual growth rate in average weekly earnings excluding bonuses (3M) (AWE) was unchanged at 1.9% y/y. Although AWE is quite volatile by nature, we think this was the bottom and expect the series to trend up again.
Inflation expectations from Sweden are due out but are probably becoming less relevant. Government bond auctions will be held today in Sweden, Norway and Denmark. See Scandi markets, page 2.

Selected Market News

Yesterday, oil ministers from Qatar, Russia, Saudi Arabia and Venezuela committed to freezing production at 11 January levels. The decision does not change the current oil market situation. Recent estimates suggest that both Russia and Saudi Arabia produced at levels close to a record high in January and the two leading oil producers have basically committed not to take any imminent action to reduce the current global overproduction of around 1.5m bpd. The announcement was a disappointment for the oil market and the price of Brent crude has dropped around USD 3 a barrel since the announcement.

The market is very much waiting for the ECB and Fed meetings in March and ‘hoping’ for a big policy move from the ECB and for the Fed to at least go on ‘hold’ for now. Last night Fed voting member Rosengreen said “Monetary policy will be responsive to incoming economic data...But if the outlook doesn't improve from its current state...the normalization of monetary policy should be unhurried, and wait for economic data to improve".

Early US economic data for February released yesterday showed a mixed picture. Empire manufacturing actually improved slightly to -16.54 from -19.37 in January and new orders also improved. It still points to a drop in activity but at a slower pace. In ISM terms this would translate into a 45 reading from the current 43. See graph here. Housing data was a bit on the weak side.

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