Macro Weekly – Weather-swept payrolls

by: Han de Jong , Nick Kounis , Georgette Boele , Roy Teo

Macro Weekly - 13 January 2014 - Weather-swept payrolls ()
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  • Big Picture: The US labour market generated a much lower than expected 74,000 jobs in December according to the official report. However, there is evidence that it was depressed by bad weather and the data do not fit in with the general trend in the economy. This disappointment therefore does not make us doubt our view that the global economy is gaining momentum, that economic growth is more likely to surprise on the upside than on the downside and that we have started a period in which forecasters are likely to raise their forecasts.
  • Rates: Government bonds were supported last week by the soft US labour market report and ECB easing speculation. Given that US employment was likely impacted by bad weather conditions, we expect the Fed to continue to taper its asset purchases. Meanwhile, we think that the likelihood of yet lower inflation makes further policy easing from the ECB a distinct possibility. It therefore seems likely that cross Atlantic monetary policy divergence will be one of the major themes in fixed income markets in coming months.
  • FX: The US employment report drastically changed the short-term sentiment on the US dollar. Bad weather has increased the risk of near-term disappointment on the US data front, however we expect this to be only temporary and stick to our view that the dollar is set to strengthen in coming months. Meanwhile, the euro is likely to come under pressure because of less tight money market conditions and the likelihood of more monetary easing.