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Friday’s non-farm payrolls figures for June will be the standout of a data-packed week in the US that will be shortened by the July 4 celebrations.
Analysts polled by Reuters expect a further 180,000 new jobs to have been created in June and they forecast the unemployment rate will hold steady at 4 per cent, its highest level since February 2022.
A blowout headline gain of 272,000 in May — far above expectations — provided some reassurance on the health of the economy, but economists pointed to nuances in subsequent economic data, which suggest slowing growth.
“Americans continue to see jobs as broadly easy to get,” said Yelena Shulyatyeva, senior US economist at BNP Paribas, who added that growth in healthcare, leisure and hospitality and also local and state government jobs should support the headline number.
A number that falls below expectations could unnerve investors concerned that the US economy was losing its zip. Data in June showed continuing claims for unemployment benefits had reached 1.84mn, its highest level since November 2021 — suggesting would-be workers were finding it hard to get jobs, even if those in work were relaxed about their prospects.
Traders will also pay attention to average hourly earnings growth and its signals for inflation. Data for May showing a gradual decline in core personal consumption expenditure — the Federal Reserve’s preferred inflation gauge — supported those hoping for an interest rate cut in the coming months. The earnings growth rate for June is forecast to slip to 3.9 per cent year-on-year for a new post-pandemic low.
“Historically, AHE growth in the vicinity of 3 per cent has been more consistent with [personal consumption] inflation growth of 2 per cent,” Shulyatyeva added. Jennifer Hughes
How would sterling react to a Labour landslide?
Markets have shrugged off the twists and turns of the UK general election campaign in recent weeks, with the opposition Labour party widely expected to enter government with a majority of seats in parliament after voters head to the polls on Thursday.
Since Prime Minister Rishi Sunak’s surprise announcement in May of a July 4 election, sterling has weakened 0.6 per cent against the dollar. The fall has mostly been driven by a strong greenback, which has strengthened 1 per cent against a basket of six currencies over the same period.
While UK government bond prices have been affected by economic data expectations of when the Bank of England will start lowering interest rates, they have been much steadier than their French counterparts in the run-up to parliamentary elections there.
Investors say a very large Labour majority could provide some support to sterling and to UK debt if it helps reassure markets that a new government will usher in a prolonged period of stability in UK politics and makes it easier to reform planning permission rules, which could help stimulate growth.
“In relative terms [to France], the UK [election] is being treated as a non-event,” said Peter Goves, head of developed markets rates strategy at MFS International. He added that, “at the margin”, a Labour landslide would support sterling because it “ought to provide a degree of stability in the UK that arguably has been lacking”.
Labour currently leads the ruling Conservatives by about 20 percentage points in the FT’s aggregation of national voting intention polls. If the polls are broadly correct, Labour could win about 450 of the 650 House of Commons seats. Mary McDougall
Will the European summer holiday season stoke inflation?
The start of the summer tourist season is pushing up prices of many services from package holidays to hotels, threatening to delay the decline in Eurozone inflation expected by many analysts.
The latest inflation figures for the bloc to be published on Tuesday will indicate how much services prices are being lifted and whether this is offset by slowing energy and food prices.
Economists polled by Reuters forecast overall Eurozone inflation would dip slightly, from 2.6 per cent in May to 2.5 per cent in June.
The early signs from figures released in France, Spain and Italy on Friday are that the downward pull from easing energy and food inflation is slightly stronger than the upward push from sticky services prices.
Inflation fell slightly in France and Spain, but rose slightly in Italy. After stripping out energy and food, core inflation was either flat or dipped slightly in all three countries. George Moran, an economist at Nomura, said: “The evidence on core inflation suggests slight upside risks.”
The figures should still provide some reassurance for the European Central Bank, which recently cut interest rates for the first time in five years while expressing concern about the stickiness of services prices.
“Overall, these releases won’t overly worry ECB officials, but stalling disinflation in services will strengthen their resolve to be cautious,” said Franziska Palmas at Capital Economics.
She predicted the ECB was likely to keep interest rates on hold at its next meeting in July but then cut them twice by a total of a half percentage point by the end of the year. Martin Arnold