Global risk markets have pared back some of this week’s recovery, now awaiting more significant news in regard to the coronavirus. S&P lowered its forecast for Chinese GDP growth this year to 5% from 5.7%. This assumes the virus is contained by March. Meanwhile, after yesterday’s awful factory orders, Germany released very weak December industrial production figures showing of fall of 3.5%m/m. The German industrial sector has contracted in the past six quarters.
All eyes will be on today’s US monthly labour market report. Economists are looking for non-farm payrolls to rise by 165K, up from 145K in December. The unemployment rate should be unchanged but average hourly earnings growth could accelerate to 0.3% from 0.1%. NFP ≥160k and wage growth accelerates by ≥0.3% - positive for the dollar. NFP ≤135k and wage growth is ≤0.2- dollar bulls will lose control.
The ADP report on Wednesday revealed a stellar increase of 291k in private sector payrolls, owing in part to the mild temperatures which resulted in fewer seasonal layoffs. However, it’s not clear to what extent, if at all, that is reflected in today’s ‘official’ figures. Other evidence for January jobs conditions in the US has been mixed. The four-week moving average for initial jobless claims continued to fall – a positive indicator for the labour market – but the ISM non-manufacturing employment index fell to a four-month low. The latter, though, may reflect increasing recruitment difficulties rather than slower demand. The Fed will release its Semi-Annual Monetary Policy Report to Congress today ahead of Chairman Powell’s testimonies next week.
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