Week Ahead: Can nonfarm payrolls turn it around?

The next five days is a big week full of big meetings. On the data front, it’s nonfarm payrolls time. Will we see a reversal of fortune for US labour markets? We’ve also central bank meetings in the form of Bank of England and Federal Reserve summits. A new month means a new OPEC-JMMC meeting too.

Nonfarm payrolls – a swing and a miss or return to form?

The week’s most significant data release is October’s US nonfarm payrolls data.

It’s been a hard couple of months for jobs in the United States. NFPs have been way wide of the mark for the past two months. September’s numbers clocked in at 194,000 new jobs against 500,000 expected. August was expected to add 366,000 roles. 720,000 were forecast this month.

Jobs are a key metric for tapering. We’re still expecting the FOMC to announce tapering this Wednesday at its monthly meeting, but it’s clear that Fed Chair Powell sees the labour sector far from where it needs to be.

One thing that will be interesting in the near-to-mid term is the impact of record job walk outs. Over 4.3 million Americans quit their jobs in August. There is a myriad of reasons why (pent-up savings, early retirement, general job dissatisfaction, etc.). The number of US workers leaving their jobs could result in new roles being created, this an NFP bump – but it could result in more misses as we’ve seen recently.

FOMC to confirm tapering?

Whatever the state of the job market, Jerome Powell says tapering is “on track”.

As mentioned above, the markets had been expecting the scaling back of the US massive QE programme to begin in November. This still hasn’t been 100% confirmed, but we may see it at this week’s FOMC meeting.

Currently, the Fed is buying securities worth $120bn a month as part of its extraordinary pandemic fiscal support measures.

With an apparently weaker jobs sector and spiralling inflation, no rate hikes are expected just yet. But, according to Powell, beginning to ease off the QE pedal will allow the Fed to tackle both these issues.

“No one should doubt that we will use these tools to guide inflation back down to 2% over time,” Powell said at an event held by the South African Reserve Bank last Friday. “At the same time, we think we can be patient and allow the recovery to take place and allow the labour market to heal.”

A couple of FOMC members have confirmed they will support tapering at this week’s meet. Fed Governors Randal Quarles and Christopher Waller are amongst those more hawkish voices on the council.

“This action should not tighten financial conditions, since a later 2021 tapering has already been priced in by most participants,” Waller said last week.

Bank of England: to hike or not to hike?

When the Bank of England meets on Thursday it’ll be facing a dilemma. The central bank’s Monetary Policy Committee (MPC) is still being split by hawks and doves, but it appears the hawks might be winning the fight.

But is a rate hike coming? And is now the right time for the Bank of England to start messing about with rates? Inflation is still high, despite a slight drop last month, and growth is stagnating.

Governor Bailey certainly seems hawkish. Earlier in the month, the BoE chief said the bank would have to act to contain inflation. One of the tools at his disposal is rating hikes.

However, others aren’t so sure of the validity of raising rates from their historic lows just yet. Silvana Tenreyro, a BoE policymaker, has indicated rates won’t rise until after Christmas. Silvana, like many of the more dovish voices on the Bank council, is betting that high inflation is all transitionary.

BoE Chief Economist Huw Pill appears to be leaning more towards the hawks.

In his first public comments since taking up his post, Pill said: “In my view, that balance of risks is currently shifting towards great concerns about the inflation outlook, as the current strength of inflation looks set to prove more long-lasting than originally anticipated.”

At the October session, the MPC voted unanimously to keep rates stable. It will be interesting to see if the group collective remains united, or if the hawks will start to dominate.

OPEC+ meeting – saying the course?

It’s a new month which means a new set of OPEC-JMMC meetings.

OPEC+ is not looking to buck the system here. It has very clearly stuck to its guns throughout the past couple of months and kept production increase steady at 400,000 bpd per month.

The cartel has faced calls from big crude oil consumers, notably the US, to open the taps further. This is despite the fact the United States sits upon millions of barrels of shale and could look to its own resources, but that’s a separate issue.

No, OPEC+ and its chair Saudi Arabia are quite content with the way oil markets are moving. Crude oil prices are up roughly 50% year-on-year in 2021. And, according to Saudi Arabia, a surplus is on the cards for 2022.

So, why would OPEC and its allies want to change things? The per-barrel price of crude is soaring. These countries are reliant on high oil prices for their prosperity. 40% of Russian government revenues come from hydrocarbons for instance.

As such, do not expect any big surprises at this Thursday’s OPEC-JMMC meeting.

Wall Street earnings season keeps the Q3 reports coming

Remember, we are still deep in earnings season. Wall Street is alive megacaps report their third quarter financials.

Big names reporting this week include ActivisionBlizzard, Uber, Pfizer, and Airbnb. To see which companies are reporting and when don’t forget to check out our US earnings season calendar.

Major economic data

Key earnings data