US Non-farm payrolls (Feb) – 10/03 – the boom in the January payrolls numbers proved to be a significant catalyst in a change of perception about the health of the US economy, as well as shaking markets out of the complacency that had characterised sentiment as we started 2023 on a strong note.
The market reaction was most notable in terms of bond yields, and while equity markets have continued to hold onto a narrative that any further rate hikes are likely to be limited, the strength of the economic data since then has cast that perception into doubt. In the space of a month, we've gone from a narrative that had rate cuts coming before the end of the year, to an imminent pause in the next couple of months, to how many more rate hikes can we now expect? This week's payrolls report could well go further in reinforcing the latter if the jobs growth we saw in January continued into February. Just to be clear, no one is expecting another 517k, and we could also see a significant revision, but a February number anywhere close to 200k would still be in line with a robust US labour market. Wages will also be a key touch point, as will the unemployment rate which fell to 3.4% and the lowest level since 1969. In a sign that people are also returning to the workforce, the participation rose to 62.4% matching its highest level since the start of the pandemic. Job vacancy levels will also be a key benchmark given they rose to just over 11m back in December. Could they fall back in January after that bumper 517k payrolls print?
A lot of the commentary around Ueda has seen him paint a fairly neutral stance when it comes to the prospect of possible policy tweaks. This would suggest that the current policy of yield curve control (YCC) is unlikely to see any changes in the short term. That said this will be Kuroda's last meeting as central bank Governor begging the question as of whether he might start to lay the groundwork for a policy change in the coming months. Japanese inflation is already well above target at 4.3% and looks set to continue rising. It's hard to envisage a scenario that would see the Bank of Japan happy with an inflation rate that is rising sharply, and a currency that is once again wilting against the onslaught of a strong US dollar.
This has been shown clearly, not only in the trade numbers but also in a sharp decline in consumer spending, which has seen retail sales slide sharply. In Q4 the Chinese economy stagnated to the tune of growth of 0%, equating to annual GDP growth of 3%. With this week's trade numbers for the months of January and February which will showcase the period over the Chinese New Year, we will get a better idea of how much the relaxation of lockdown restrictions has unleashed pent-up demand. Having seen exports finish 2022 with a -9% decline, while imports declined -7,5%. This week's numbers will be a decent indicator of how much consumer confidence there is in the economy, compared to previous January, and February numbers. 12 months ago year to date exports saw a gain of 16.1%.
