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Trading news
3 Feb 2016
Eurozone: Labour market still reflecting stronger domestic backdrop - Rabobank
FXStreet (Delhi) – Research Team at Rabobank, suggests that in mainland Europe, the labour market is still reflecting the stronger domestic backdrop that marked 2015 – even though recent business surveys indicate that growth of economic activity in the eurozone likely slowed around the turn of the year.
Key Quotes
“The eurozone unemployment rate fell to 10.4% in December, the lowest level since October 2011. German unemployment fell to a new record-low of 6.2%. The increasingly tight labour market in Germany should maintain upward pressure on wages, but in the remainder of the Eurozone, we cannot speak of any material signs of rising wages.
Indeed, indicators of employee compensation growth and negotiated wages have actually shown a tendency to decline over the past few years. The risk of second round effects of falling headline inflation on wages and inflation expectations was also highlighted by ECB President Draghi in his speech before EU parliament on Monday.
The 5y/5y EUR inflation swap forward yesterday dropped below the 1.5% psychological threshold, which we argue was the final straw that pushed the ECB into announcing QE in January 2015. Of course we will never know where we would have been had the ECB not initiated QE, but in our opinion the effectiveness of QE has proved remarkably limited. But that is unlikely to deter the ECB to do more this year, starting with a 10bp deposit rate cut as a bare minimum in the March meeting.”
Key Quotes
“The eurozone unemployment rate fell to 10.4% in December, the lowest level since October 2011. German unemployment fell to a new record-low of 6.2%. The increasingly tight labour market in Germany should maintain upward pressure on wages, but in the remainder of the Eurozone, we cannot speak of any material signs of rising wages.
Indeed, indicators of employee compensation growth and negotiated wages have actually shown a tendency to decline over the past few years. The risk of second round effects of falling headline inflation on wages and inflation expectations was also highlighted by ECB President Draghi in his speech before EU parliament on Monday.
The 5y/5y EUR inflation swap forward yesterday dropped below the 1.5% psychological threshold, which we argue was the final straw that pushed the ECB into announcing QE in January 2015. Of course we will never know where we would have been had the ECB not initiated QE, but in our opinion the effectiveness of QE has proved remarkably limited. But that is unlikely to deter the ECB to do more this year, starting with a 10bp deposit rate cut as a bare minimum in the March meeting.”