Does the US nonfarm payrolls release matter and will Trump get any further with tax reform? The week ahead poses as many questions as answers for traders.

NFP

 

Do investors still pay attention to the nonfarm payrolls? In short, yes, since maximizing employment is one of the Fed’s three key objectives. But as the US economy reaches full employment and jobs growth appears to have a less pronounced effect on inflation, the impact of the headline number on expectations for monetary policy has become more marginal. Indeed cooling jobs growth, combined with stuttering inflation, has yet to dent the Federal Reserve’s commitment to raising rates again this year.

At its last meeting the Fed revised core PCE inflation given the recent decline in the measure over the last four to five months. The Fed now expects PCE inflation to run at just 1.5% in 2017, from June’s expected 1.7%. 2018 has been revised down marginally from 2% to 1.9%.

On the labour market, the projections were unaltered from the June projections for this year but the FOMC believes unemployment to stay at 4.1% in 2018 and 2019, having previously estimated this at 4.2% each year. As is the trend, a tighter labour market is not translating into higher inflation - the broken Phillips Curve in evidence.

In August, a total of 156,000 jobs were added, well short of expectations and below the average of 180,000 over the last year. Unemployment was steady at 4.4%, while wage growth was flat at 2.5%.

The US Bureau of Labor Statistics releases its monthly Employment Situation Summary at 13:30 (BST) on Friday, October 6th.

Tax reform?

 

Healthcare is dead, long live tax reform. For now the Trump administration is doing its best to get tax reform off the ground. Hopes are high, with last week’s nine-page document outlining the key details fuelling a rally in stocks and sending global bond yields higher.

New records were set on the main indices as the Freedom Caucus backed the GOP’s tax plans, a move that is seen as essential to getting the bill through Congress.

The plans to cut corporate tax from 35% to 20% would significantly boost corporate earnings, particularly for smaller companies and financials. The small-cap Russell 2000 hit a new record high while bank stocks pushed the Dow Jones industrial average close to all-time highs again.

So is the Trump trade back on? Market participants will be paying close attention to what’s going on in Washington this week to find out.

Tesco half-year results

 

Booker ‘merger', the effect of Amazon’s acquisition of Whole Foods and the ongoing hit from discounters – there should be plenty on offer in Tesco’s interim results on Wednesday.

In June’s Q1 trading update the company recorded its sixth like-for-like quarterly sales increase on the bounce and its best q-o-q performance for years. The advances made under Dave Lewis continue as Tesco grows in a tough market.

Like-for-like sales growth of 2.3% was marginally ahead of expectations. Overall group LFL sales growth of 1% reflected international sales that were 3% lower, dragged down by the poor performance in Asia, particularly Thailand. A focus on keeping prices down despite rising inflation (think Unilever spat) is paying off, particularly in fresh food where volume growth stood at 1.6%.

Certainly the market is moving from deflationary to inflationary, but the question is always profitability and margins – and whether the momentum in evidence in Q1 has been carried through into Q2. Retail sales figures over the summer look robust, which may be a good indicator for Tesco.

PMI data

 

The start of the month means the usual round of purchasing managers’ surveys. Of note is the UK services PMI, which is usually the best guide for GDP growth. The week kicks off on Monday with a round of manufacturing PMIs from Japan, the UK, Eurozone and the US.

 

Economic Calendar

(All times BST)

Monday, 2nd October

00:50 – Japan Tankan manufacturing index & non-manufacturing index

08:15 – Spain manufacturing PMI

09:00 – Eurozone final manufacturing PMI

09:30 – UK manufacturing PMI

15:00 – US ISM manufacturing PMI

15:30 – Bank of Canada business outlook survey

Tuesday, 3rd October

All day – German bank holiday, non-trading day for Xetra Dax (out of hours on Germany 30)

01:30 – Australia building approvals

04:30 – Reserve Bank of Australia cash rate, rate statement

06:00 – Bank of Japan core CPI inflation

08:00 – Spain unemployment change

09:30 – UK construction PMI

Wednesday, 4th October

Tentative – UK inflation report hearings

00:01 – UK BRC shop price index

09:00 – Eurozone final services PMI

09:30 – UK services PMI

13:15 – US ADP non-farm employment change

15:00 – US ISM non-manufacturing PMI

15:30 – US crude oil inventories

Thursday, 5th October

01:30 – Australia retail sales, trade balance

12:30 – ECB monetary policy meeting accounts

13:30 – Canada trade balance

13:30 – US trade balance, weekly unemployment claims

15:00 – Canada Ivey PMI

15:00 – US factory orders

Friday, 6th October

08:30 – UK Halifax house price index

13:30 – Canada employment change, unemployment rate, building permits

13:30 – US nonfarm employment change, unemployment rate, average hourly earnings

Corporate Calendar

 

Monday, 2nd October

Daily Mail and General Trust (DMGT) – trading update

Tuesday, 3rd October

Ferguson (FERG) – final results

St Ives (SIV) – final results

Electrocomponents (ECM) – trading update

Greggs (GRG) – trading update

Wednesday, 4th October

Tesco (TSCO) – interim results

Topps Tiles (TPT) – trading update

PepsiCo (PEP) – Q3/2017, EPS estimate 1.42

Monsanto (MON) – Q4/3027, EPS estimate -0.38

Thursday, 5th October

DFS Furniture (DFS) – final results

Morses Close (MCL) – interim results

Ferrexpo (FXPO) – Q3 results

Merlin Entertainments (MERL) – trading update

Costco Wholesale Corporation (COST) – Q4/2017, EPS estimate 2.01

 

Source: Bloomberg

 

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