Economics & Growth | Europe | FX | Monetary Policy & Inflation | Rates | US
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Summary
- Strikes may be behind Friday’s low US payroll data, suggesting the Fed may discount the print and keep a December hike in play.
- The BoE may be overestimating future wage growth due to reliance on problematic ONS data. We position for a more dovish outlook.
- Japan’s Ministry of Finance typically succeeds in supporting the yen, keeping us out of a long USD/JPY position for now.
- The US faces a structural housing shortage that is contributing to housing inflation – and the Fed cannot ignore it forever.
Will the Fed Discount Friday’s NFP?
NFP were lower than expected, perhaps due to the UAW strike. For October, reported strikers were 48k, up from 18k in September, according to the BLS. The household survey (CPS) shows a similar picture (Chart 1). Including strikers, payrolls could have been nearer 200k than the 150k reported.
Dominique thinks the Fed is likely to discount the low print, remain focused on the totality of the incoming data, and keep a December hike in play.
Is the BoE Still Relying on Problematic Data?
The BoE held rates steady at the November meeting. However, the updated MPR was hawkish, still expecting only limited labour market loosening. This is because the MPC still considers the average weekly earnings data (AWE) as the main guide to earnings despite uncertainty around ONS labour force data. As such, they have revised their YE YoY expectations for regular private pay growth 1ppt higher to +7.2% YoY. This is despite other surveys coming in lower (Chart 2).
The ONS’s updated, improved data series release on 12 December will therefore be critical. Henry expects the labour market will loosen faster than the BoE assumes. Overall, we position for a more dovish BoE outlook. We see value receiving near-term SONIA/be long near-term SONIA futures, positioning for 2s10s GBP steepeners vs EUR, and playing the calendar box spread of SONIA and SOFR Mar24/Mar25.
Why We Are Not Buying USD/JPY (Yet)
Ben and Richard remain wary of buying USD/JPY because the threat from the Japanese Ministry of Finance to support the currency via intervention is credible. The MoF has warned that they are on ‘standby’ and are ‘very concerned about one-sided, sudden moves’ in JPY. And one thing is clear: actual intervention eventually works (Chart 3).
The US Faces Persistent Housing Inflation
The US suffers from aging residential units, stagnating housing stock, and rising housing demand. The consequence is a structural housing shortage that will likely mean housing inflation keeps outpacing other core services (Chart 4). As Dominique argues, the Fed cannot ignore this forever.