Macro Insights

Paris, 04/09/2017


Improving inflation in euro area contrasts with subdued US employment

  • In political news Macron launched his bid to reform the French labour market and China announced the official date for the Communist Party Congress as 18 October
  • Rise in EMU inflation in August. EMU June HICP inflation rose to +1.5%yoy (from +1.3% in July), slightly higher than expectations (consensus at +1.4%). Core inflation remained unchanged at +1.2%. In this context, we do not anticipate any major policy announcement during this week's meeting, however we still expect the European Central Bank will use its October meeting to announce that tapering will begin in the first quarter of 2018.
  • French government unveils labour market reform. Last week, PM Édouard Phillipe’s government released details of its labour market reform. The most impactful measures will introduce more flexibility in the French labour market (e.g. capping some dismissal compensations, collective layoff plans for global firms based on financial situation in France and no longer worldwide, moving toward company-level negotiations without unions involvement, reforming short-term contracts). The decrees relating to these measures will be published on 22 September.
  • After a subdued payrolls report - both in terms of employment and average earnings - markets will be focused on key speakers this week. Comments from Fed officials (before the Fed enters into its purdah period ahead of its meeting on 20 September) and from the Trump administration as government focuses on imminent  fiscal issues, will be closely monitored by market participants. Federal support in the wake of Hurricane Harvey will likely influence the possible timing of the debt ceiling decision, and also likely affect the politics behind blocking either an increase in the debt ceiling or a government spending bill.
  • In the UK, the ongoing fallout from the latest Brexit negotiations meetings continued to dominate the press. We see the uncertainty associated with the Brexit process as continuing to dominate and expect another subdued quarterly expansion in Q3, estimating 0.3% on the quarter for now. This week’s services PMI for August and industrial and construction output estimates for July will provide the first concrete numbers for Q3 GDP output.
  • The Communist Party Congress in China will have important long-term implications. China has just announced that the once-in-five-year party congress will be held on 18 October. There are two reasons  investors should pay attention to the event. First, up to five members of the seven-people Politburo Standing Committee (PSC) are due to retire. The PSC represents the pinnacle of the communist party leadership and the very top of China’s decision-making body. A major reshuffle in its composition will have significant implications for macro policies going forward. Second, important policy signals could be contained in the Party Secretary’s (Xi Jinping) political report. As China enters a critical juncture of its development, how will the senior leaders address the internal and external challenges will be important for the future of the economy and financial markets.

Upcoming events:

  • ECB Meeting (Thursday)
  • Euro area data : Composite PMIs for France, Italy, Germany and EMU (Tuesday), EMU Q2 GDP first revision (Thursday), Industrial production for Germany (Thursday), Spain and France (Friday)
  • UK data: August Manufacturing PMI (Monday), Services PMI (Tuesday)


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The Research & Investment Strategy (R&IS) team at AXA Investment Managers present their views on recent developments and the factors shaping markets over the week ahead. For more information on the R&IS team or any of the above comments, please contact us or follow us on social media for updates throughout the week



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