US Nonfarm Payrolls awaited amid productivity weakening

In focus today

Today, the key US data release is the January Jobs Report. Due to seasonal adjustments, we expect nonfarm payrolls growth to slow down to +150k (prior: +256k), with average hourly earnings rising by 0.3% m/m SA, and unemployment rate remaining at 4.1%. Additionally, the University of Michigan's preliminary February consumer sentiment survey will be released, with recent volatility likely due to differing views between optimistic Republican and bearish Democratic respondents.

In the euro area, the ECB will publish an analysis of the neutral interest rate, which is the rate that is compatible with stable price and wage growth when the economy is at its structural level. The ECB, markets, and analysts agree that ECB policy rates should continue to decline. Previously, the ECB estimated the neutral policy rate to be between 1-5% and 2.0%, but sources suggest the new estimate might be revised upward to 1.75% and 2.25%.

In Germany, industrial production data for December will be released. It will be interesting to see if the downward trend eases like the PMIs suggested. 

In Sweden, The Swedish National Debt Office (SNDO) will release the January 2025 central government payments outcome. The November and December results were significantly weaker than expected, leading to a larger than anticipated borrowing requirement of SEK 26bn since the report from last November. Svensk mäklarstatistik will publish January's house price statistics.

Economic and market news

What happened yesterday

In the US, Q4 non-farm productivity growth weakened coming in at 1.2% (cons: 1.4%, prior: 2.3%). While the data tends to be volatile, current pace is now close to the pre-pandemic trend (1%-ish). This indicates a slowdown in structural growth, with firms likely to pass wage hikes onto prices or absorb them into margins. Unit labour cost growth accelerated to 3.0% q/q AR. Weekly jobless claims landed close to expectations. These releases are not expected to have a significant short-term market impact.  

In the UK, the BoE cut the Bank Rate by 25bp to 4.50%, as widely expected. The vote was split 7-2 with most members voting for a 25bp cut, while Dhingra and Mann voted for a larger 50bp cut. This marks a significant shift as Mann, previously the most hawkish member of the MPC, had consistently voted for an unchanged decision in recent meetings. See more in our Bank of England Review, 6 February.

In Sweden, the preliminary January inflation figure excluding energy was significantly higher than anticipated, reaching 2.7% y/y (prior: 2.0%, cons: 2.1%). This exceeded both our and the market's expectations, as well as the Riksbank's forecast. Detailed composition data will be published next week with the final figures and this print will be important for future policy considerations from the Riksbank.

In the euro area, December retail sales declined more than expected by 0.2% m/m (cons: -0.1%, prior: 0.1%). However, retail sales saw a 1.9% y/y increase compared to December 2023. This is significant for the growth outlook for 2025, as consumption is expected to drive GDP. The latest data on retail sales raise questions about the extent to which consumption will enhance growth in the euro area. 

In the Czech Republic, as expected, CNB cut rate by 25bp to 3.75%. Earlier yesterday inflation data exceeded expectations, leading to some last-minute speculation that the CNB might refrain from cutting rates. That said, the CNB indeed opted for a cut regardless.

Equities: Global equities were higher yesterday, sending the MSCI World Index to a new all-time high. While earnings are a significant factor for the relative sector movements we see during the reporting season, we must also consider changes in risk sentiment. Yesterday, cyclicals massively outperformed defensives, with banks leading the performance tables in both the US and Europe. This was not just an earnings-driven outcome but also a result of investors getting more optimistic and vol coming lower. VIX back down at 15.5 yesterday. Regionally, the strong performance continued in Europe, with the German DAX index surpassing a 10% performance year-to-date and being higher in 15 out of the last 18 trading days. This serves as a good reminder that one should be careful in linking politics with equity market performance. In the US yesterday, the Dow was down by 0.3%, the S&P 500 rose by 0.4%, the Nasdaq increased by 0.5%, and the Russell 2000 fell by 0.4%. Asia presents a mixed bag this morning, with China leading the advances. US and European futures are lower this morning.

FI: In an uneventful trading session, European rates traded sideways, while waiting for today's NFP report. The BoE's decision to cut by 25bp with a dovish surprise did not leave a mark on other jurisdictions. Bailey later soothed the dovish surprise with more modest guidance.

FX: Today, the FX market will take direction from the US NFP. EUR/USD remains close to 1.04 and USD/JPY continues its decline below 152 ahead of the US numbers. GBP/USD dropped below 1.24 immediately after BoE's dovish cut, but the sell-off proved temporary and was soon more than fully retraced. In Sweden, the core inflation print took markets by surprise, which bolstered the already ongoing SEK rebound alongside a significant repricing of the Riksbank. EUR/SEK fell from 11.35 to 11.31.EUR/NOK fell from 11.70 to 11.64, which at the end of a volatile day, left NOK/SEK unchanged around 0.9720.