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LGT Navigator: US labor market report paves way for Fed rate hike

February 7, 2022

The US labor market performed surprisingly strongly at the start of the year despite the spread of the Omicron virus. The solid development of the labor market should encourage the Federal Reserve in its plan to raise key interest rates in March for the first time since 2018.

US labor market report paves way for Fed rate hike

The US private sector has created 467'000 new jobs in January. Analysts had expected an increase of only 150'000, according to Reuters. In addition, about 700'000 more new jobs were created in November and December than previously estimated. The number of jobs is thus steadily approaching the pre-crisis level. However, there is still a shortfall of 2.9 million jobs compared with February 2020. In contrast, the unemployment rate, which is surveyed separately, unexpectedly rose to 4% from 3.9% in December. The trend is an indication that more people are looking to return to the labor market. During the pandemic, numerous Americans had given up looking for a job. In this case, they are also no longer recorded as unemployed. Wages have also risen more than expected. Average hourly earnings were +5.7% higher than in the same month a year earlier. This is the strongest growth since the mid-2020's. In December, wage inflation was +5.0%.

The Federal Reserve has already signaled that it plans to raise key interest rates in March for the first time since 2018 to combat high inflation. The fact that the employment situation is developing well despite the current pandemic wave should support this plan. Rising wage inflation, which could further fuel price growth, also argues for monetary tightening. Financial markets consider it as certain that interest rates will be raised on March 16. The question now is how big the interest rate step will be. The CME futures exchange puts the probability of an interest rate hike of 25 basis points at just under 70%. The probability of a rate hike of 50 basis points has thus risen significantly: it climbed on Friday after publication of the labor market report to 30%, after it was around 14% the previous day.

On Wall Street, technology stocks were once again in the spotlight last Friday. The tech indices gained almost one and a half percent and could thus recover some of their previous day's losses as they were supported by positively received business figures from Amazon. The Dow Jones Industrial, on the other hand, closed almost unchanged from the previous day and recorded a gain of one percent for the week. The S&P 500 gained just under half a percent on Friday. Asia's stock markets opened the new week without a clear trend. Chinese shares rose sharply in some cases on Monday after the Chinese New Year.

ECB experts revise inflation expectations upward

Economists have significantly raised their inflation expectations for the eurozone. Experts surveyed by the European Central Bank (ECB) expect annual inflation to rise to +3.0% in 2022, the ECB announced. The survey was conducted in the first quarter, in the fourth quarter, the expectation was still at +1.9%. For 2023, economists forecast inflation to fall to +1.8%. In contrast, growth expectations for the European economy are slightly lower at +4.2% for 2022 (previously +4.5%). In 2023, the economy is expected to expand by +2.7%.

Oil prices continue to soar

Crude oil prices continued their upward trend on Friday and remained above USD 90 per barrel. WTI quoted on Thursday for the first time since October 2014 above this mark. The trigger for the latest price increase is a severe winter storm in the US that swept across large parts of the central and the northeastern part of the country. Massive snowfall and high wind speeds caused interruptions in energy supplies. In view of the ongoing geopolitical tensions between Russia and Ukraine and the tight oil supply, some analysts are forecasting prices of over USD 100 per barrel for the current year.

European retail trade earns less

European retailers earned significantly less than expected in December. Sales fell by -3.0% compared to the previous month, as reported by the statistics office Eurostat. Analysts had forecast a decline of only -0.9%. In a year-on-year comparison, sales were up +2.0%, but here too the figures were below expectations of +5.0%. Unlike in previous months, online retailers also earned less in December. So far, they have been among the profiteers of the pandemic.

German industry lands more orders

German industry benefited from robust domestic demand at the end of 2021. Orders rose +2.8% month-on-month in December, Germany's Federal Statistical Office reported. Analysts had expected a smaller increase of +0.3%. This means that incoming orders rose for the second month in a row. Domestic demand developed encouragingly, rising by +11.7%. By contrast, orders from abroad fell (-3.0%).

  

Economic Indicators February 7

MEZ Country Indicator Last period
07:45 CH Unemployment rate (January) 2.4%
08:00 GE Industrial production (m/m, December) -0.2%
10:30 EZ Sentix economic indicator (February) 14.9

 

Earnings Calender February 7

Country Company Period
US Amgen Q4

 

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Publisher: LGT Bank (Switzerland) Ltd., Glärnischstrasse 36, CH-8027 Zurich
Editor: Tina Haldner, E-Mail: lgt.navigator@lgt.com
Source: LGT Bank (Switzerland) Ltd.

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