Daybreak Weekend: US Jobs, Burnham Conference, RBA Decision

SPEAKER_1 (0:02)

Bloomberg Audio Studios, Podcasts, Radio, News.

Nathan Hager (0:10)

This is Bloomberg Daybreak Weekend, our global look at the top stories in the coming week from our Daybreak anchors all around the world. Straight ahead on the program, we look to a busy week of economic data. I'm Nathan Hager in Washington.

Caroline Hepker (0:22)

I'm Caroline Hefker in London, where we're looking at Prime Minister Andy Burnham's plans ahead of his first Labour Party conference as leader.

Doug Krisner (0:31)

I'm Doug Krisner looking at whether higher inflation in Australia will push the Central Bank to raise its policy rate.

SPEAKER_1 (0:39)

That's all straight ahead on Bloomberg Daybreak Weekend. On Bloomberg 1130 New York, Bloomberg 99.1 Washington DC, Bloomberg 92.9 Boston, DAB Digital Radio London, Sirius XM 121, and around the world on bloombergradio.com and the Bloomberg Business App.

Nathan Hager (1:02)

Good day to you. I'm Nathan Hager. We begin today's program with a busy week of economic data to look forward to in the US. The Fed's preferred gauge of inflation, the personal consumption expenditures index for August comes out Wednesday.

Then, we get a broad read of the labor market in the September non-farm payrolls report due out Friday. Plenty of risks to consider, so let's bring in Edward Harrison for more on this. Ed's a senior strategist for Bloomberg News and author of the Everything Risk newsletter. Great to speak with you as always, Ed. And dare I ask what the bigger risk is this week? I mean, the Fed's been laser focused on the inflation side of the mandate. Does that change after this week?

Edward Harrison (1:44)

No, Nathan, I think it doesn't change. You know, the last time you and I spoke, we spoke about the jobs number.

We talked about the potential for that number to undershoot as a result of temporary, people who have temporary protected status, leaving temporary protected status. That didn't happen. The number was actually ahead of expectations. And on top of that, there were backward revisions that were up. I think that in the interim, we've seen the data come in very strong. So this week, we should be looking for strength, and that strength potentially having a negative effect on the bond market, in particular, by sending yields higher.

Nathan Hager (2:28)

Now, what about the inflation side of the mandate? We do, as I mentioned, get that PCE index on Wednesday. Where do you see that coming down?

Edward Harrison (2:39)

Well, you know, the consensus is for to stay put at 3.7% in terms of the headline number, but the core is actually supposed to go up from 3.3% to 3.4%.

My understanding is there may be some slight changes in how they calculated. That means that it could go under that number, 3.4%. So my expectation is definitely it will be above 3%, but there is more risk that it goes lower than the consensus has right now.

Nathan Hager (3:14)

Okay. So what has you thinking that it could potentially go lower, especially when we think about the surge in energy prices that we've seen this month?

Edward Harrison (3:24)

It's purely just in terms of a mechanistic recalculating of the input for PCE. They've talked about that, and my understanding is that that should be beneficial despite the fact that we've had inflation being problematic. But let's remember that this is the number that the Fed watches, and both the core and the headline number are going to be above 3%.

And their mandate is for a 2% inflation target. So however you slice it, the number is going to be elevated. The only positive is if the number is slightly lower than expected, but that doesn't take the pressure off of the Fed.

Nathan Hager (4:08)

When we think about the pressure that has been on the Fed right now, with so many officials saying that there is more work to do to get inflation back to the 2% target, could this PCE number bring an October decision into play?

Edward Harrison (4:24)

Definitely, because if you look at the swaps market, as late as Thursday of last week, we saw something in the order of two-thirds priced in for a rate hike in October. We also saw that it was fully priced for December, so the pricing could move up from two-thirds price to a fully pricing, perhaps even pricing in both a rate hike in October and December. Of course, then the question becomes, what does the GDP number look like after that, and what do the jobs numbers look like after that as well?

Nathan Hager (5:01)

Thinking about the GDP number as well, how much of this inflation, the fact that we are continuing to see elevated inflation well above the Fed's target, driven by strength in the economy itself? We just got those survey numbers from businesses this past week that point to a pretty resilient economy still.