Week ahead: Jobs report to get US labour back on track?

It’s a mix of big data and central bank announcements this week. 

The US nonfarm payrolls report is back. Will the labour market pick up after two consecutive months of misses? 

Elsewhere, watch for contrasting approaches to post-pandemic recovery from the Bank of England (expected to hike rates) and the ECB (expected to take no rate action). 

There’s the OPEC+ meeting for February too as oil treads close to its highest level in almost 8 years. 

US hopes for a stronger nonfarm payrolls print

Friday sees the release of January’s US nonfarm payrolls report, tracking the labour market’s status in the first month of 2022. 

It’s been a bit of a running theme with US jobs recently, but markets and the Fed will be hoping to see a better showing in January than in December. 

December showed another disappointing month for jobs growth. Hiring faltered with 199,000 new roles added during the final month of 2021. Wall Street was expecting at least 422,000 jobs to be added to the US labour market then. 

This marked two consecutive months with a disappointing nonfarm payrolls report. 

There were some reasons to be cheerful in December though. The unemployment rate fell to 3.9%, lower than the 4.1% expected, while wages were up 4.7% year-on-year. 

Unemployment rates are nudging closer to their near 50-year historic low of 3.5% seen in February 2020. Good news for Jerome Powell and the Fed who are looking to tighter labour conditions as they contemplate interest rate hikes. 

BoE statement – rate hike on the way?

After December’s rate hike, markets were looking at the possibility of another Bank of England increase in the near future.  

A second base rate rise could be on the way at Thursday’s BoE announcement. 

Investors polled by Reuters believe there is an 87% chance of the UK central bank pushing rates up from 0.25% to 0.5% on February 3rd.  

The belief is Governor Bailey and co. need to do something to help tame rising inflation, which has hit multi-decade highs in recent months. 

BoE Policymaker Catherine Mann said in a January 21st speech to the Official Monetary and Financial Institutions Forum that current price and wage expectations are out of synch with the Bank’s 2% inflation target. 

“Going into 2022, current price and wage expectations coming from the monthly decision maker panel [a monthly business survey] are inconsistent with the 2 per cent target, and if they are realised in 2022 are likely to keep inflation strong for longer,” Mann said. 

“In my view, the objective for monetary policy now should be to lean against this ‘strong-for-longer’ scenario.” 

ECB statement – no rate hike on the way

Unlike the Bank of England, the European Central Bank is not anticipated to make any changes to its rate policy moving forward. 

When the ECB plans on bumping interest rates up is up for speculation. Ratings house Fitch suggests a 2024 rate hike, while ECB council member Klaas Knot thinks 2023 is more likely with inflation staying above 2% beyond 2022. 

The emergence of the Omicron variant and subsequent lockdowns by some EU member states has thrown up an interesting conundrum the bloc. Did the mutation have a significant impact on the European Union’s collective economy? And will this be enough to spur Brussels into action? 

ECB Chief Economist Philp Lane says no.  

Speaking on the 25th of January, Lane said: “So far, we do not see a big response of wages to inflation.” 

Lane went on the say that: 

• There are some near-term risks related to omicron 
• But it is not a factor that will influence activity levels for the year 

• The ECB thinks inflation will fall “quite a bit” later this year 
• Rather than focus month by month, the European Central Bank has clear vision of direction i.e., inflation will fall later this year 
• Less likely to see a scenario where inflation is persistent, requiring serious tightening of policy 

Essentially, don’t go looking for a rate hike this year because it’s probably not happening. 

That said, something’s got to give. Spanish producer prices alone skyrocketed 35.9% in December. Overall EU headline inflation hit 5% at the end of 2022. Failure to act may be disastrous for the European Union. 

OPEC+ meets as oil climbs higher

OPEC and allies meet once more at the start of the month to pour over the direction of the global oil market once more. 

Chances are, we’re looking at another monthly output increase of 400,000 bpd from March onwards. But there might be a bit of a problem in actually delivering that. 

It appears OPEC members have not been pumping as much as they said they would. Overall, the group is pumping about 760,000 barrels per-day less than quotas demand. 

Saudi Arabia, where oil output is booming, could cover the shortfall, but a combination of sanctions, geopolitics, and mechanical shortfalls on key infrastructure, is putting output pressure on OPEC+ nations such as Russia. 

Smaller OPEC nations are also at or nearing full capacity. A prolonged oil price rally could be triggered by these conditions. Lower spare production may cause markets to think oil producers have a lower buffer to offset any sudden supply disruptions. 

We also have a new OPEC Secretary General. Haitham al-Ghais replaces Mohmmad Barkindo as the cartel’s new head honcho. al-Ghais has a remit to ensure OPEC sticks with non-member oil producers who have been linked since the 2017 Declaration of Cooperation.  

Earnings season 

It will be another busy week on Wall Street as earnings season rumbles on. 

Big tech in the form of Google, PayPal, Amazon and ActvisionBlizzard all report in, while we get some oil majors like ExxonMobil and carmakers like Ford and General Motors sharing quarterly earnings too. 

Be sure to check out our earnings calendar to see who is reporting and when this earnings season. 

Keep scrolling to see the companies reporting on Wall Street this week. 

Major economic data 

Key earnings data