Macro Brief: The most important Beige Book for a long time

The economic calendar is quite busy today with the ADP employment report, US trade balance, Beige Book and also NY Fed Williams and Cleveland Fed Mester who have speaking engagements. Our main focus will be the ADP report and the Beige Book.

Without much surprise, the ADP report should confirm that employment growth is slowing. The consensus expects payroll to reach between 180k-185k which is much lower than in January 2019 as you can see in the chart below (212k). The report has limited value for forecasting the NFP report which is due on Friday, but investors still keep a look at it in case there is a large surprise that could impact the market. This is very unlikely to happen this month.

The most important event will be the publication of the Beige Book. Usually, only economists read it and comment it, but we think that this time every investor should pay attention to the release as it will strongly influence the upcoming Federal Open Market Committee meeting and the Fed’s forward guidance.

Last January, the Beige Book confirmed that the labor market is tight, leading to higher wages but drew a rather gloomy macroeconomic outlook due to a combination of risks: political uncertainty, financial markets volatility, rising interest rates and falling energy prices. We believe that the upcoming report will support the idea of lower growth, but it will be a bit more optimistic as some of the risks have vanished (especially financial market volatility). An overall positive Beige Book would limit pressure on the Fed to send a strong message to investors at its upcoming meeting. It would give more time to the central bank to gather data and adjust its monetary policy. 

Today's Calendar (times GMT)

13:15 US ADP employment survey
15:30 US trade balance
15:00 Bank of Canada rate decision
17:00 Fed's Mester speaks in Columbus, Ohio
17:30 Fed's Williams speaks in New York
17:30 BoE's Saunders speaks in London
19:00 Fed releases Beige Book