US jobs report and Powell testimony take center stage

(Bloomberg) — U.S. job growth likely slowed last month after a blistering pace in January, while the unemployment rate likely held to a 53-year low, illustrating a labor market that has proved mostly impervious to the Federal Reserve’s massive rate hikes.

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The report will follow testimony from Fed Chairman Jerome Powell on Tuesday and Wednesday as he delivers the semiannual monetary policy report to lawmakers. His comments may shed light on whether investors are in tune with the central bank’s view of how high it will need to raise interest rates to beat inflation.

Payrolls rose by 215,000 in February, according to the median forecast in a Bloomberg survey. To start the year, US employers added more than half a million workers and the unemployment rate fell to 3.4% – results that dashed expectations of a short-term pause in the Fed’s tightening campaign.

Friday’s jobs report will be the last before the Fed meets on the 21st-22nd. March to consider another rate hike of 25 basis points or to potentially be more hawkish in light of recent data showing stubborn inflation. Officials will also have February consumer price index and retail sales data in hand before they meet.

“If the data show that the re-acceleration at the beginning of the year was short-lived, the Fed’s narrative would become much easier,” Bank of America Corp. economists, led by Michael Gapen, said in a report. “A little bit of bad news would be good news for the Fed.”

Robust demand for labor has boosted wage growth, which in turn supports consumer spending and increases employer costs. This risks keeping inflation higher for longer and helps explain why the swaps markets are now pricing in a top policy rate of 5.5% in September. The benchmark rate is currently in a range of 4.5% to 4.75%.

What Bloomberg Economics Says:

“But our analysis suggests that many of the high-profile layoffs that have been announced — in technology, for example — don’t translate into job losses until about two months later. If that’s correct, we should expect to see the first jobless claims rise in March.

The March jobs report – which will not be released until after the next FOMC meeting – is likely to show clearer signs that the labor market is weakening. Unfortunately, the Fed cannot wait until the fog clears to make policy decisions.”

— Anna Wong, Stuart Paul and Eliza Winger, economists. For full analysis, click here

Powell is likely to be asked by lawmakers if a half-percentage-point move is under consideration. The Fed raised interest rates by a quarter point on Feb. 1, reversing a half-point increase in December that came after four consecutive 75-basis-point moves.

Elsewhere, Canada’s central bank may halt interest rate hikes, while Australia’s is likely to rise again and the Bank of Japan’s decision will mark the end of an era.

Click here for what happened last week and below is our wrap of what’s coming up in the global economy.

Canada

In Canada, Governor Tiff Macklem is set on Wednesday to become the first Group of Seven central banker to take his foot off the monetary brake.

The Bank of Canada is expected to keep interest rates steady at 4.5% in its first decision since officials declared a conditional pause in January. Macklem said it would take an “accumulation of evidence” that the economy was not developing as expected for policymakers to step off the sidelines, and so far that has not materialized.

Canada’s inflation eased to 5.9% at the start of the year from a peak of 8.1%, and manufacturing was flat in the fourth quarter. However, the labor market remains tight, with a new batch of jobs data due on Friday after two consecutive blowout reports.

Asia

China set a modest economic growth target of around 5% for the year, with its top leaders avoiding any major stimulus to boost a recovery still weighed down by weak business confidence and an uncertain property market.

The latest data has shown that the economy’s recovery is strengthening, with trade and inflation figures due later this week.

Haruhiko Kuroda will make his final policy decision as Bank of Japan governor on Friday, as a landmark decade-long tenure of unprecedented stimulus draws to a close.

Although he has one last chance to surprise the markets with a move that might help his likely successor Kazuo Ueda, the consensus is that Kuroda will end with barely a whimper a stint that began with a bazooka burst of bond buying , ending with a simple position. -clap.

The week kicks off with inflation numbers from South Korea that will test how seriously Bank of Korea Governor Rhee Chang-yong must consider returning to rate hikes after pausing the tightening cycle last month.

The Reserve Bank of Australia meets on Tuesday and is expected to push ahead with another quarter-percentage-point hike, even after the latest data showed slower-than-expected growth and a cooling in inflation. Under pressure Governor Philip Lowe will get a chance to explain the decision the following day amid growing anxiety over Australia’s cost of living.

Europe, Middle East, Africa

After a week in which core inflation in the eurozone hit a new record, the next few days offer the last chance for policymakers to comment before a blackout period ahead of their March 16 meeting. Investors are betting that the European Central Bank deposit rate will rise as high as 4% in the coming months.

President Christine Lagarde said in an interview published on the ECB’s website on Sunday that a half-point hike this month is “very, very likely.”

Lagarde is scheduled to speak again this week, as are chief economist Philip Lane and executive board member Fabio Panetta.

It’s a quieter week than usual for Eurozone data. German factory orders and industrial production, on Tuesday and Wednesday respectively, will be among the highlights.

In Britain, figures on Friday will reveal whether the economy began 2023 with expansion, keeping a widely predicted recession at bay for longer. Gross domestic product likely rose 0.1% in January from the previous month, according to the median forecast of economists.

Consumer price data elsewhere in Europe will attract investors’ attention. From Monday, Swiss statistics are likely to show slower inflation in February, with economists expecting a 3% result. Price growth in the Czech Republic and Norway, which is expected on Friday, may also be weakened.

Hungary, which had the fastest inflation in the EU in January, is likely to have had a similar result above 25% last month. That release comes on Wednesday.

Polish policymakers on the same day are likely to keep their interest rate at 6.75%, while their Serbian counterparts may raise borrowing costs again on Thursday.

In Sweden, the monthly GDP indicator for January may signal whether the largest Nordic economy began the year with another decline. With a looming recession and a decline in the housing market, investors can focus on speeches from officials, including Riksbank Governor Erik Thedeen on Tuesday. Thedeen said Saturday that curbing inflation remains a priority.

Further east, Russia on Monday reports auto sales, which are expected to remain in steep decline amid the exit of Western manufacturers. Monthly inflation data on Friday will be watched for signs that price pressures are increasing.

In South Africa, data on Tuesday is likely to show the economy shrank in the fourth quarter as record blackouts choked output and discouraged investment. In figures from last month, mining and manufacturing output, which make up about a fifth of total GDP, fell in the December quarter.

Egyptian inflation due Thursday is likely to show another acceleration after food prices hit a record and the effects of the latest currency devaluation filtered through.

Data on Thursday is expected to show that Saudi Arabia’s non-oil sector grew at the strongest pace in more than a year, helping the kingdom record the fastest overall growth among major global economies at the end of last year.

Latin America

In Argentina, construction activity and industrial production in January could both extend declining trends, not least due to trade and exchange controls that hamper the import of materials.

After a surprise decision to keep the key rate unchanged in February at 7.75% after 18 straight hikes, Peru’s central bank is up against it at this week’s policy meeting. Nationwide protests that have weighed on economic activity have also pressured inflation, which is currently nearing its peak in June 2022 at 8.81%.

Ending the week, the last of the region’s five major economies after February consumer price reports. While Chile, Mexico and Brazil all appear to be on the downhill side of peak inflation, many analysts expect above-target readings to plunge the trio into 2025.

A third month of deceleration in Chile may only reduce the overall rate to 12%, while early estimates for Mexico see it slipping to around 7.7%, the first drop in three months and just 100 basis points below the cycle high.

And while Brazil’s central bank has cut 600 basis points from its headline reading, inflation is now pegged just below 6% – roughly where local analysts see it at the end of the year.

–With assistance from Gregory L. White, Robert Jameson, Stephen Wicary, Malcolm Scott and Andrea Dudik.

(Updates with China Congress in Asia section, Lagarde in EMEA section.)

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