Despite the hurricanes’ destruction, employment figures from September supported Fed Chair Yellen’s faith in wage growth; Germany and the “Jamaica” option; the Bank of England sets a hard deadline for Brexit; China and the World Bank agree on shadow banking.
“We are seeing some sun break through, but it is not a clear sky.”
Good call: U.S. wages The most widely-noticed figure in the September jobs report was the 2.9% year-over-year increase in average hourly earnings – well above consensus expectations. That rise was achieved without an increase in hours worked – suggesting that per-hour wages have headed upward. The figure lent additional support to Fed Chair Janet Yellen’s expectation that wage growth is right around the corner. Little wonder, then, that the fed funds futures market is trading as if the odds of a December rate hike are just north of 80%.1 That’s a dramatic reversal from the 21.8% of September 7; by the time the FOMC met on September 20, the market had already raised its estimate to just over 60%.
Germany: Jamaica coalition? According the forecast of Wolfgang Schäuble, a senior member of Angela Merkel’s Christian Democratic Union (CDU), the post-election ruling coalition will consist of the conservative CDU, the Free Democrats (FDP), and the Green party. The three parties, represented by the colors black, yellow and green (the colors of Jamaica’s flag), was made necessary by the dramatic losses by the Social Democrats (SDP) and their decision to part ways with Merkel’s party. The result could be an increasingly centrist parliament, and a tilt toward more involvement in European Union (EU) politics – a change from the somewhat hands-off approach of the previous government.
UK: The ank of England ups the ante According to Bank of England (BoE) Deputy Governor Sam Woods, Britain’s banks will need a watertight Brexit transition deal by Christmas in order to prevent an increased flow of people and banking operations to the EU.
China and the World Bank: On the same page The World Bank’s October report on the East Asian and Pacific economies adds to the consensus view – both by China’s government and outside observers – that the country’s “shadow banking” could add to the challenges presented by the growing amount, and kinds, of debt. “Shadow banking” can refer to relatively unregulated financial institutions which take deposits by individuals and borrow against those assets to magnify returns. The People’s Bank of China (PBoC) has singled out these entities as a source of concern as well.
Sources: Bloomberg, Wall Street Journal, Deutsche Welle, The Telegraph.