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    IronFX Daily Commentary | Solid US jobs report boosts the case for a December rate hike | 09/11/2015

    09.11.2015, 9am

    • Solid US jobs report boosts the case for a December rate hike The US economy added an astonishing 271k jobs in October, far exceeding expectations of 180k and much better than the last two months sluggish gains. The unemployment rate also fell to 5.0% from 5.1%, while average hourly earnings accelerated from the previous month. The solid jobs report offset the soft readings in the prior two month, and raised the likelihood for the Fed to pull the trigger on an interest rate hike at its final meeting in December. The market is currently pricing a 70% chance of a hike in December, up from around 60% a day before the release of the employment report. The greenback rallied to a near 7-month high against a basket of currencies, and could remain supported as US data continue to bolster the case for a rate hike this year.

    • Today’s highlights: The economic calendar is relatively light. We start the day with Germany’s trade balance for September. Both exports and imports are forecast to have risen after declining in August. Exports are expected to have risen at a faster pace than imports, something that would drive the nation’s trade surplus up for the good reasons. We stay a bit cautious on this expectations as the Volkswagen scandal may have hurt the country’s exports.

    • In the US, the Labor Market Conditions Index (LMCI) for October is to be released. Although this indicator is not a major market mover, we will watch it closely due to the Fed’s emphasis on the employment data. Following the astonishing surge in nonfarm payrolls on Friday, and a strong overall employment report, another upbeat labor indicator could increase the probabilities for a Fed hike in December.

    • Canada’s housing starts for October are also to be released.

    • We have only one speaker on Monday: Boston Fed President Eric Rosengren.

    • As for the rest of the week, on Tuesday, we get China’s CPI and PPI data for October. The CPI is expected to have slowed to 1.5% yoy from 1.6% yoy, while the PPI is forecast to have declined at a bit slower pace than in September. The CPI rate is well below the PBOC’s target and this leaves the door open for further monetary easing if necessary. We believe that the Bank is likely to cut the reserve requirement on more time this year.

    • We also get the CPI data from Norway. Norway’s inflation rate is expected to have risen to 2.2% in October from 2.1% previously. In its latest policy meeting, the Norges Bank decided to leave its benchmark interest rate unchanged and noted that the weaker-than-projected NOK, along with a more expansionary fiscal policy, contributed to fuelling demand for goods and serviced. An increase in Norway’s inflation rate is likely to increase speculation that the Bank will stand pat at its next meeting as well. This could prove NOK-positive.

    • On Wednesday, The highlight of the day will be the UK employment report for September. The forecast is for the unemployment rate to have remained unchanged at 5.4%, while average weekly earnings are expected to have accelerated to 3.1% yoy from 2.9% yoy. Further improvement in the UK job market is likely to support Cable, which could erase some of its losses caused by the BoE dovish stance last Thursday and the strong US employment report on Friday.

    • On Thursday, during the Asian morning, Australia’s employment report for October is coming out. The unemployment rate is forecast to have remained unchanged at 6.2%, while the net change in employment is expected to show an increase of 15k, after a decline of 5k in September. This will confirm the upbeat view of the RBA on the country’s labour sector, something that we saw in the Bank’s Statement on Monetary Policy last week. Improvement in Australia’s employment could strengthen AUD, especially against NZD.

    • During the European day, we get Sweden’s CPI and CPIF for October. The headline inflation rate is forecast to have remained unchanged at 0.1% yoy, while the CPIF rate is expected to have risen by a percentage point. At its latest policy meeting, the Riksbank noted that economic activity in Sweden is strengthening and inflation is showing a clear upward trend. The CPIF data seem to be in line with that view, but bearing in mind that the Bank is very concerned regarding the strength of the global economy and that the ECB looks ready to pull the trigger for further stimulus, we believe that these data will not be enough to ease the pressure from the Riksbank to act again in the foreseeable future. We maintain our SEK bearish view.

    • Finally on Friday, we get the preliminary GDP data for Q3 from France, Germany, and Eurozone as a whole. Eurozone’s preliminary GDP is expected to have risen at the same pace as in Q2, while figures released from Germany, Eurozone’s growth engine, are likely to show that the German economy has slowed in Q3. Investors will most likely watch the French, Italian and German data released ahead of the bloc’s figure for the overall growth outlook of Eurozone and EUR will react accordingly.

    • In the US, headline retail sales are expected to have accelerated in October, while retail sales excluding autos and gasoline are estimated to have risen after staying unchanged in September. Further improvement in retail sales could suggest a pick-up in growth for Q4 and could strengthen the greenback further.

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