The latest economic reports and central bank meetings have revealed significant trends in employment, monetary policy, and inflation across various nations. US ADP National Employment Report indicates a small gain in private sector employment. At the same time, Sweden’s and Poland’s central banks have taken aggressive action to raise their policy rates. As we await more data, the big question is what each of these developments means for global markets.
ADP National Employment Report, released last Wednesday, showed that in October, private sector jobs in the US were up by just 42,000. This is a dramatic leap above the initial rosy projections of 14,000 and the consensus estimate of 28,000. In addition, the report revised September’s job growth upward by 3,000, further signaling better-than-expected labor market conditions.
The unexpected strength of the report might help shed some light on why the US economy has proven so strong in the face of persistent inflationary pressures. Analysts are closely observing upcoming economic indicators, including the US Challenger Report, which is due for release for October, to gauge the overall employment landscape.
Central Bank Decisions Impact Monetary Policy
In Sweden, the Riksbank has held its policy rate at 1.75%, as expected by practically all economists. The central bank signaled that this decision aligns with earlier forecasts and that “the policy rate is expected to remain at this level for some time to come, in line with the forecast in September.” This measured strategy is indicative of Riksbank’s strong approach to inflation containment without sacrificing overall economic expansion.
Poland’s National Bank took the opposite approach. At its last meeting in November, the central bank reduced its monetary policy interest rate by 25 basis points to 4.25%. It is the fourth consecutive cut. Second, it signals the start of a more accommodative monetary policy that seeks to energize economic activity in light of lowered growth expectations.
Economists argue that Poland’s move could have a significant impact on its neighbors’ economies as they reconsider their own monetary policies. Inflationary pressures are releasing in Poland. This unprecedented predicament fast brings to mind what this could mean for interest rates ahead throughout the 27-nation European Union.
Focus on Inflation and Economic Indicators
As global attention turns towards inflation metrics and industrial production data, Sweden’s preliminary inflation figures for October are set to be released at 08:00 CET. Expectations are high as some analysts expect these figures to come in one and three tenths above the Riksbank’s forecasts. Such a move would give important context to Sweden’s future monetary policy decisions, which is more important than ever.
At the same time, Germany’s industrial production data is coming under focus. Economists have been jumping at the opportunity to run positive trends in manufacturing output over the past few months. Their main emphasis is on the effects of supply chain disruptions and increasing costs.
We expect the Norges Bank to hold the line on its policy rate, keeping it at 4.00%, at today’s Monetary Policy Committee meeting. Analysts expect no surprises from this decision. It’s hard to say how long, but so far signals indicate that the bottom rate will hold firm at least through December. Analysts stress that holding this high-water mark is very important to striking the right balance between inflation hawkishness and pro-growth policies.
International Labour Market Trends
Outside Europe, Japan’s labor market is similarly rosy and rotten. Labour cash earnings increased 1.9% year-on-year in September, signalling a yardstick measure of progressive direction for what workers take home. Real wages declined by 1.4% year-on-year in that same period, the ninth straight decrease, and real average hourly earnings are down 3.7% since April 2020. This trend, coupled with rising prices, further threatens Japanese profit margins and consumer mood.
International markets are reeling from this week’s events. The EUR/USD exchange rate has found a floor under 1.15 after yesterday’s shocker ADP jobs report from the U.S. For currency traders these economic indicators are closely watched barometers. They’re looking to understand how possible changes in monetary policy would affect the value of our exchange rates.