The US labour market has ended 2019 on a softer but still healthy tone as data at the back end of last week showed hiring expanded 145’000, trailing the forecast of 160’000, while annual wage growth also came in slightly off forecast at 2.9% compared to an expected 3.1% - its slowest since July 2018. Unemployment remained at its 50-year low of 3.5%.
Given the moderating US labour market and slowing wage growth, we can expect the Fed to remain in its current accommodative policy mode.
China’s Renminbi extended its rally this week which has bolstered sentiment for emerging markets in general. The steady appreciation of the currency has provided an important role in soothing global investor sentiment, and has also been removed as a ‘currency manipulator’ by the US.
The UK pound traded below the USD1.30 level as it slipped on economic weakness and further easing talk by officials at the Bank of England.
November GDP data showed the economy contracted 0.3%. Market odds of a quarter point rate reduction on 30 January has jumped to 62% according to swaps trading. Furthermore, inflation data on Wednesday slowed to 1.3% in December adding weight for a rate cut.
The US and China have formalised their hard fought phase-one agreement this week to halt their trade-war, bringing in a fragile truce and testy period of reconciliation. It commits China to making USD 200 billion in additional purchases and other pledges on currency and intellectual property in exchange for small rollback in some tariffs and a hold on further punitive measures.
However, it leaves in place the vast bulk of tariffs imposed on USD 360 billion of Chinese products. The agreement will offer some respite to investors but the timing and prospects for a second phase of negotiations remains unclear.
The week ahead will see a number of central bank meetings taking place – Canada (22 January), Norway (23 January), and the ECB (23 January).