Non-Farms in focus

There’s a slight upside bias to European indices as we approach the open. This follows on from another positive close across Wall Street and a fresh record finish for the NASDAQ.

Investors are looking ahead to this afternoon’s US Non-Farm Payroll release for August. The consensus expectation is for job gains of 180,000 which would be a touch down on the 209,000 created in July but still keep the 6-month rolling average above 180,000. This is considered healthy in the current environment.

The Unemployment Rate is expected to hold steady at 4.3% - back at lows last seen over 16 years ago, and before then back in the late sixties. This low rate of unemployment has led some FOMC members to worry that inflation could suddenly surge higher. Certainly the employment picture has been improving across the Euro zone, Japan and UK, where central banks have kept monetary policy loose. This is why investors will also keep a close eye on today’s Average Hourly Earnings release as any pick-up in wage growth should encourage the hawks within the Fed. But yesterday’s Core PCE number (the Fed’s preferred inflation measure) has given the doves the upper hand. This fell to +1.4% in July from +1.5% previously and well below the Fed’s 2% target. It also continues the downward trend that began in January. Janet Yellen has made it clear that the Fed is keeping a close eye on inflation and there’s little chance of the central bank raising rates further this year unless Core PCE picks up sharply.