Week Ahead Preview: How US Labour Market Data Will Shift Rate Cut Odds
- John Choong
- Dec 1, 2024
- 4 min read
A data-packed start to December will tell all on whether a December rate cut is still on the cards on both sides of the Atlantic.
A Chilly Winter for House Prices?
Both Nationwide and Halifax will be reporting how the housing market has reacted post-Budget this week. And whilst consensus estimates see house price growth plateauing at their current rates, it could be worse. After all, house prices did suffer a bigger-than-forecasted month-on-month (M/M) dip after the last Budget in March.
Nonetheless, investors can look for clues on where house prices will end up going into the year end via the construction Purchasing Managers Index (PMI) survey due on Thursday. The devil will be in the details, though, as the most telling metric will be business confidence, as that tends to be a leading indicator based on how builders feel about the market (higher confidence comes as a result of more customer demand, leading to higher house prices).
Tip: The PMI is a survey of business managers in the private sector to measure metrics such as business activity, order books, prices charged, etc. A figure above 50 marks expansion from the month before, while a figure below marks contraction.
Working Towards a Rate Cut?
Other major economic data will also be due on both sides of the pond. Final readings for November's manufacturing and services PMIs will be released throughout the week. These are expected to show contradicting fortunes between the two countries. On the one hand, the UK will be bracing to see its growth decline and possibly turn negative, while the US sees a jump. This goes to show how important a change in government can be to an economy.
Given that the UK has already been suffering from low growth recently, as well as how dependent its economy is on services, a confirmation reading of 50 (no growth) will be nothing less than alarming, especially after Gross Domestic Product (GDP) turned negative in September. And when considering the fact that PMIs tend to be leading indicators for GDP growth, such a poor read wouldn't bode well for the UK's economy going into Q4.
Across the Atlantic, however, the US is expecting a jump in its PMIs. Businesses are set to report a rise in activity post-election, which will hopefully be reflected in the non-farm job numbers after an extremely poor showing last month due to hurricanes. Hence, a figure above 185k could see markets pare back the odds of a rate cut due to the strength of the labour market, while something much weaker could ramp up odds of one.
That said, those odds will also be dependent on average hourly earnings as well. Wage growth is forecast to remain sticky at 4.0% on a year-on-year basis (strong labour market), with a slight tick down to 0.3% M/M. However, given the continued uptick in last week's wages and salaries sub-metric from the personal income data, it could suggest that the estimated decline in hourly earnings growth may be optimistic.
The University of Michigan will also release its preliminary consumer sentiment results, and just as is the case with the US's PMI figures, there should be an increase in the headline reading. Nonetheless, the Federal Reserve will be paying close attention to inflation expectations. If the year-ahead inflation expectations nudges up to 2.9% as estimated, it could put off a rate cut this month, which markets are currently pricing in with a 2/3 chance.
Big Talks
Nevertheless, much of how markets price their rate cut expectations going into the new week will be down to the two governors' speeches both the UK and US central banks. Both Andrew Bailey and Jerome Powell are due to speak on Wednesday, with the Bank of England's Megan Greene also speaking on Thursday.
In the UK, Governor Bailey made it clear in his last public appearance that he wasn't as bullish on cutting rates at every meeting. Instead, he said that he was more in favour of a more 'gradual' approach. So, considering that inflation came in higher than forecast last month, we are anticipating him to affirm his 'gradual' stance.
The picture is a little bit more mixed with Powell, however. Although the Fed Chair stated in his last speech that there is 'no rush' to cut rates, he also said that the bigger risk now lies in the labour market. But given that inflation has been more stubborn since the Fed began cutting rates, it will be crucial to see if Powell returns to a more cautious stance regarding his inflation outlook － which we don't foresee him doing given his rigidity.
Data Schedule and Consensus Estimates
Day | Event | Consensus | Previous |
MON | UK Nationwide HPI (M/M) | 0.2% | 0.1% |
MON | UK Nationwide HPI (Y/Y) | 2.4% | 2.4% |
MON | UK Manufacturing PMI | 48.6 | 49.9 |
MON | US S&P Manufacturing PMI | 48.8 | 48.5 |
MON | US ISM Manufacturing PMI | 47.5 | 46.5 |
TUE | UK BRC Retail Sales Monitor (Y/Y LFL Sales) | 0.7% | 0.3% |
TUE | US JOLTs Job Openings | 7.49m | 7.44m |
TUE | US JOLTs Job Quits | 3.00m | 3.07m |
WED | BoE Bailey Speech | ||
WED | UK Services PMI | 50.0 | 52.0 |
WED | US ADP Employment Change | 165k | 233k |
WED | US S&P Services PMI | 57.0 | 55.0 |
WED | US ISM Services PMI | 55.5 | 56.0 |
WED | Fed Chair Powell Speech | ||
THU | UK Construction PMI | 53.8 | 54.3 |
THU | US Challenger Job Cuts | 49.0k | 55.60k |
THU | BoE Greene Speech | ||
FRI | UK Halifax HPI (M/M) | 0.3% | 0.2% |
FRI | UK Halifax HPI (Y/Y) | 3.7% | 3.9% |
FRI | US Unemployment Rate | 4.1% | 4.1% |
FRI | US Non-Farm Payrolls | 183k | 12k |
FRI | US Average Hourly Earnings (M/M) | 0.3% | 0.4% |
FRI | US Average Hourly Earnings (Y/Y) | 4.0% | 4.0% |
FRI | US Michigan Consumer Sentiment Preliminary | 72.9 | 71.8 |
*Any forecasts and commentary are opinions and analyses based on available data at the time of publishing, which may prove incorrect. This content is for informational purposes only — please consult a qualified financial advisor for personalised investment advice.
