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Euro Area Job Creation Gains Stall

Daily Analysis - 10/01/2017

Regional Unemployment Rate Remains on Hold

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The latest Euro Area labor market report showed that the unemployment rate remains unchanged at 9.80% despite a lower overall trend during the past two years. Nevertheless, expectations are for further gains in job creation over the coming months as Europe employs more of the available workforce.

Euro Jobless Rate On Hold


Figures reported on Monday by Eurostat showed that the unemployment rate within the Euro Area remained at 9.80% during the month of November, matching expectations and the reading in October.  Although unemployment has been on a downward trend over the last two years thanks to the accommodative efforts of the European Central Bank, the latest figures stress the importance of having accompanying fiscal stimulus to boost economic momentum.

Compared to November from a year earlier, the figure has shown tremendous gains, falling from 10.50% after adding 972,000 over the subsequent twelve months and 15,000 positions during November.  Even with the unemployment rate at 7-year lows and economic confidence climbing, youth unemployment remains a pressing concern, especially after the latest data from Italy showed the rate rising further.  Meanwhile, the Euro remains on the climb, retaking the 1.0600 level versus the US dollar.

 

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Fed Officials Strike More Hawkish Tone


With the December interest rate decision paving the way for further rate hikes, recent commentary from key Federal Reserve officials corroborates the viewpoint that the American economy continues to strengthen.  According to Boston Federal Reserve President Eric Rosengren, the Central Bank should take faster action to raise rates considering the economic backdrop, specifically inflation if the economy continues to grow at its current pace.

By comparison, Atlanta Fed President Dennis Lockhart pointed to an economy that has nearly recovered from the last crisis with employment nearing ideal levels.  However, instead of focusing on rates, Lockhart pointedly stated that the focus should shift to productivity, investments, and stimulating growth through means other than policy.  Despite the more hawkish attitude, the US dollar continued to pullback, paving the way for gold to inch upwards to the highest point in over a month.

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Australian Retail Figures Disappoint


Amid expectations of a bigger uptick in retail sales for November, the month over month consumption data showed that sales climbed by only 0.20% compared to estimates of 0.40% and October’s 0.50% print.  Although lower interest rates have seen household borrowing rates and debt increase, it did not translate to retail spending momentum, as evidenced by the latest data, with November’s figures marking the softest growth since July.

The major drag was food sales from restaurants, cafes, and takeout sliding by -0.80% during the period whereas clothing apparel and personal accessories managed to rebound from a -0.40% contraction a month earlier to 1.70% during November.  While other spending measures have shown strength despite a weaker economic backdrop, the latest retail figures do point to tapering gains in consumption which might weigh on fourth quarter GDP growth.   The Australian dollar nevertheless has managed to trend modestly higher versus its US counterpart.

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Chinese Consumer Inflation Gains Taper


After receiving a measurable bump over the last few months, gains in Chinese consumer prices are easing as evidenced by the latest print from December which showed inflation climbing by 2.10% year over year.  Although the annualized CPI figure was forecast to remain on hold at 2.30%, the pullback in inflation is causing some concern amongst officials, especially as the figure remains below the government target of 3.00% for 2016.

However, in a positive sign, producer price growth rose by the fastest pace since 2011, printing at 5.50% year over year as the ongoing devaluation of the Yuan raises costs for the manufacturing and industrial sectors.  Following nearly four years of producer price deflation, the latest PPI figures are a good sign for the consumer price outlook as producers pass along the higher costs.  In the meantime, the Yuan is giving back gains following the biggest two-day rally in years.

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