Up until recently, employment data was one of the key drivers of expectations around fiscal policy. Even though that’s not so much the case anymore, jobs numbers are still a major influence on the markets, particularly going into the end of the year.
The latest news shows that the pandemic in Europe is far from over. And there is a potential for new employment shocks.
Over the weekend, reports surfaced of a new covid variant that was first detected in France and now in the UK and Italy. With only a handful of cases, it’s too early to know how the vaccines will affect this variant or the recently approved treatments for covid.
Also over the weekend, a council of state ministers in Germany urged the new government to extend the state of emergency to deal with the disease.
More restrictions, or more jobs?
Covid cases have spiked to record highs in recent days, as vaccination rates across Europe have generally become stagnant. German health authorities are warning about impending shortages of ICUs, and the necessity to move patients across regions.
Furthermore, with doubts about how long the immunity of the vaccine will last, many are facing the end of their covid vaccination status in the coming months. This is just as the environmental situation for the spread of the virus gets worse during winter, particularly during the holidays.
In this context, health authorities are refusing to rule out the return of targeted lockdowns and the potential resumption of travel restrictions. Moreover, they are thinking of stepping up controls on people with health passes. But this would strain business activity.
With the threat of further restrictions, the focus is now on how the employment situation might evolve over the coming months.
What to look out for
The first to report is the UK. There, we might see a stronger reaction. Markets are still not sure whether the BOE will raise rates at the next meeting. So, any data that is not in line with expectations could cause some reevaluation on monetary policy expectations.
In general, the worry is mostly around inflation. Most notably, the conventional wisdom is that employment is a driving factor behind inflation. Therefore, better jobs data would be more likely to increase speculation of a rate hike. And a disappointment in the data might raise speculation that the rate hike will be next year.
Economists expect the UK October Claimant Count to come in at -30K compared to -51.1K in September. For this data, the more negative the number, the better, which means there is an expectation of a slight deterioration in the jobs market. However, negative numbers show that more people are finding jobs.
The expectation for the UK September unemployment rate is to tick down to 4.4% from 4.5% prior. This would confirm the general notion that the UK isn’t facing a jobs problem for now.
EU employment situation not improving
Across the channel, the situation is a little different.
Analysts are not expecting the ECB to change policy any time soon. So, investors are likely to analyze employment data in terms of what it means for the health of the economy. Also, this is quarterly data and it’s representative of the situation in the summer. The expectation is that employment will deteriorate moderately going forward, due to seasonal changes.
Economists anticipate the eurozone Q3 employment change to decelerate to a growth of 0.4% from 0.7% registered in Q2. Meanwhile, the annualized change could show an acceleration to a 2.2% increase in job creation from 1.8% prior.
Monday, 15 Nov, 2021 / 2:06