Jobs data raises US rate hike odds
Data due this week for EU, as well as China
BUMPER July jobs data from the US again begun to stoke expectations of a September rate hike from the Federal Reserve, just when other major central banks around the globe are unleashing ever-looser policy.
That slightly more positive tone may linger as a backdrop for the global economy this week, with growth data due for the euro zone, Germany and Italy, along with key releases on inflation, industrial production and retail sales in China.
New Zealand’s central bank is also expected to join the easing brigade with a cut on Thursday.
In the past week, the Bank of England fired its first postBrexit salvo – cutting the bank rate to a new record low of 0.25 percent, while also reigniting its asset purchase programme – and hinted further easing was in the pipeline.
Governor Mark Carney said he had unveiled an “exceptional package of measures” because the economic outlook had changed markedly following the June Brexit vote.
The bank expected the economy to stagnate for the rest of this year and suffer weak growth next year.
Slow growth and virtually non-existent euro zone inflation would also force the European Central Bank to extend and expand the scope of its asset purchase programme, a Reuters poll of economists showed last month.
Shrugged off
Early indications suggest the bloc has so far shrugged off Britain’s decision to quit the EU, but preliminary data due on August 12 are expected to show the rate of economic growth across the currency union halved to 0.3 percent in the second quarter.
Germany will also publish its gross domestic product (GDP) numbers, likely to show a slowdown, but rising employment and wages should continue to support disposable income growth in the second half of the year.
“With the UK potentially on the brink of recession, the resilience in economic sentiment indicators on the other side of the English Channel in July is perhaps surprising,” Christian Schulz at Citi said.
The Bank of Japan (BOJ) disappointed markets last month by keeping bond purchases steady. Japan’s economic growth was also expected to have slowed last quarter, weighed down by weak domestic demand and stagnant exports, a Reuters poll found.
That would be a setback for Prime Minister Shinzo Abe, who said the priority for his cabinet was growing the economy and beating deflation.
“The world’s third-largest economy, continues to take centre stage in global macroeconomic developments, partly due to the sense that it operates as a lodestar for the trajectory of both developed and emerging economies,” Richard Iley at BNP Paribas said.
The actual GDP data will not be published until August 14, but on Wednesday the cabinet office publishes June core machinery orders, a leading indicator of capital spending, which probably rose for the first time in three months.
Three years of reflationary monetary, fiscal and reform policies dubbed “Abenomics” have done little to revive the economy, and financial markets are worried the BOJ is running out of ammunition.
“To quash talk that its arsenal is empty, the (BOJ) might decide at its September meeting to stop targeting the monetary base,” Iley said.
Skittish global investors may be reassured by steady growth expected in a flurry of Chinese data in coming weeks, but tepid demand, slowing investment and rising debt levels remain pressing concerns for the world’s second-largest economy. Beijing will publish data on trade, consumer prices, industrial production and retail sales this week.
With economic growth comfortably within the government’s target range, but credit growth near record highs, analysts have pared back calls for the first Chinese interest rate cut since October.
“Although signs were growing that the People’s Bank of China could introduce more stimulus to boost growth, recent comments suggest that the bank is sufficiently happy with the pace of growth to keep monetary policy ‘prudent’ this year,” Oliver Kolodseike at IHS Markit said. – Reuters