Sign up to myFT Daily Digest to be the first to know about Markets news.
Will US jobs numbers maintain their upward momentum?
The latest US monthly jobs report is set to build on June’s strong result as the nation’s economic recovery from the pandemic continues despite a resurgence of cases in recent weeks.
Economists polled by Bloomberg expect Friday’s non-farm payrolls report for July will show 859,000 jobs were added, up from the 850,000 gained in the previous month and well up from the revised 583,000 added in May. The jobless rate is predicted to have dipped to 5.7 per cent, down from 5.9 per cent in June.
While states across the US are battling soaring Covid cases due to the more contagious Delta variant, experts predict that jobs numbers will keep rising in coming months, filling most of the record-breaking 9.2m job openings reported in May, the latest figure available.
Last week, the Federal Reserve stated that it had made “progress” towards its goal of reaching full employment.
However, investors remain wary of inflation, which has been driven in part by increasing wages as employers struggle to fill positions. Average hourly earnings rose 3.6 per cent in June year on year.
Some cite the Biden administration’s $1.9tn stimulus package, launched in March, for a reluctance by many to rejoin the workforce, thereby elevating wages. But with that programme due to end nationwide early next month, analysts believe wage pressures will ease.
“These enhanced benefits have already expired in a handful of states, and even in those places you’re continuing to see wage growth. [But] at some point here, the well finally runs dry and people need to go back to work,” David Lebovitz, markets strategist at JPMorgan, said. Shubham Saharan
Will bond-buying divisions at the Bank of England widen?
A surge in inflation and a strong economic rebound have opened divisions at the Bank of England about how quickly it should wind down its stimulus efforts.
Chief economist Andy Haldane in May voted for a reduction in size of the central bank’s current round of bond buying to £100bn from £150bn. Although Haldane has since departed the central bank’s rate-setting committee, two further members — Michael Saunders and deputy governor Dave Ramsden — have since suggested that monetary policy should be tightened sooner rather than later.
Other committee members appear to favour continuing purchases until the planned end date at the end of the year, led by governor Andrew Bailey, who has cautioned against an overreaction to temporarily high inflation.
Investors will therefore be carefully watching voting patterns at the latest BoE meeting on Thursday.
Markets are “reasonably well prepared” for Saunders and Ramsden to vote for an immediate end to quantitative easing, according to HSBC economist Elizabeth Martins. Anything other than a 6-2 split in favour of continuing purchases would spring a surprise.
“For a central bank which has positioned itself at the hawkish end of the global spectrum, the tone this time around may be a little more dovish,” Martins said. The spread of the Delta Covid variant, as well as uncertainty over the ending of the government’s furlough scheme, should help to give the doves the upper hand, she added.
Even so, this week’s meeting is likely to be a “fractious” one given June’s 2.5 per cent annual consumer price rise was far above the BoE’s previous forecast of 1.7 per cent, said Andrew Goodwin of Oxford Economics. Tommy Stubbington
Will India’s central bank balk at inflation?
The Reserve Bank of India faces increasing pressure to alter monetary policy as it meets this week after the nation’s retail price growth hit 6.3 per cent in both May and June year on year, the highest in 2021 and above the central bank’s target range.
In an effort to revive India’s economy from the effects of the pandemic, the RBI has left its benchmark repo rate at a historic low of 4 per cent since May 2020. But persistently high inflation since then has heightened investor concern that the era of runaway price increases, which has long haunted India’s growth, could be returning.
Many analysts say the latest uptick in consumer price levels will make the central bank’s dovishness harder to justify. While few believe a rate rise is likely when the committee ends its three-day meeting on Friday, they will be watching closely for any signs that the RBI is considering a hawkish turn in coming months.
Oxford Economics has brought forward its expectations for the next rate increase to the first quarter of 2022, while Nomura expects a cumulative 0.75 percentage point increase over the course of next year.
But with India’s economy still vulnerable, policymakers could find themselves in an unenviable position. Expectations of an economic rebound this year were tempered by a ferocious second Covid wave. With low vaccine coverage and concerns about another surge in infections, heady growth is not yet assured.
“The RBI is clearly hesitant to rock the boat,” Oxford Economics analysts wrote in a recent note. “However, with underlying price pressures turning broad-based and persistent, we think it will face growing pressures to revisit the balance of economic risks in the coming months.” Benjamin Parkin