3 Numbers To Watch: Lagging France's NFP, UK Jobs, US 10-Yr Yield

Today’s update on France’s Nonfarm payrolls in the second quarter will be closely watched for estimating how to handicap the outlook for the Eurozone's still-struggling escape from recession. Later, the UK labour market report will attract the crowd’s attention. Meantime, keep an eye on the benchmark US 10-year Treasury yield as the government plans to sell USD 21 billion in new 10-year Notes in today’s scheduled auction.

France Nonfarm Payrolls (05:30 GMT) The economy of France doesn’t seem to be cooperating with the recent inclination to assume that the Eurozone has finally emerged from recession. It’s debatable how Europe’s second-largest economy will influence the broad trend for the Continent in the months to come, but it’s wise to assume that the contribution, for good or ill, will be more than trivial. The caveat is topical again with yesterday’s disappointing news on industrial production in July. Output in France unexpectedly declined 0.6 percent, sending the consensus forecast of 0.5 percent to the ash heap of broken forecasts.

Today’s update on the quarterly change in non-farm payrolls isn’t likely to change the dynamic. In the flash estimate for the second quarter (released last month), employment slipped 0.2 percent vs. Q1. The modest rise in Eurozone GDP in Q2 was widely hailed as signaling the end of recession, but the contraction from the labour market in France offered no assistance. In fact, the rate of decline steepened in Q2 vs. Q1. That’s not entirely surprising—employment metrics, after all, are labeled lagging indicators for a reason. Nonetheless, there’s precious little in France's big picture so far to suggest that this rather large piece of the Eurozone economic pie is set to provide aid and support for the optimistic view of the Continent’s business cycle. That chore still falls largely to Germany. Deciding how long Germany must carry the load is a guesstimate in progress, and one that's subject to the data du jour. On that point, pay close attention to today’s second estimate of Q2 payrolls activity for France. The main question: Did the labour market shrink by 0.2 percent? Or is the trend even worse than initially estimated?

UK Labour Market Report (08:30 GMT) In contrast with the decline in payrolls in France, Britain’s labour market continues to show a resilient run of positive momentum. The upbeat trend has yet to make a meaningful impact on the unemployment rate, which has remained mostly unchanged this year at just under 8 percent. But the persistent decline in the number of unemployed workers—the claimant count—suggests that the jobless rate will soon begin inching down.

Indeed, the claimant count has fallen in each of the last nine monthly updates, and today’s release is expected to bring us to an even ten. The average decline over the last nine months is 14,600 (in seasonally adjusted terms). The last two reports, however, have posted decreases of nearly twice as much, suggesting that the positive momentum is accelerating. The National Institute of Economic and Social Research (NIESR) offers some econometric support for assuming no less. In the latest monthly GDP estimate, NIESR advised that output in Britain expanded by 0.9 percent in the three months through August—the best pace since the three-month period through July 2010. Although the rate of growth is expected to soften in the quarters to come, NIESR adds, the main event for now is the revival in economic activity—a narrative that’s likely to receive another round of assistance with today’s labour market report.

US 10 Year Treasury Auction (17:00 GMT) The Treasury is scheduled to auction another pool of 10-year Notes, which provides another excuse to watch how, or if, the market reprices yields. What's clear is that interest rates continue to drift higher, mainly because of expectations that the Federal Reserve will soon begin winding down its quantitative easing program. The underlying driver of this change with monetary policy is a net positive, of course, namely: improving confidence in the economy’s capacity to grow without extreme measures of support from the central bank. Therein lies one reason, perhaps the main reason, that the recent rise in the benchmark 10-year Treasury yield hasn’t been the disaster that some analysts said it would be. But the details matter. So far, the details have been largely productive, at least as far as a regime of rising interest rates goes. For now, a slow and steady increase in the price of money signals that the macro outlook remains on a positive track. Meanwhile, a relatively steady rate in the Treasury market’s inflation forecast is helpful too. If either of these conditions change, however, the crowd may be inclined to reconsider its risk tolerance for a world where interest rates are likely to rise for an extended period.

No matter what’s coming, the 10-year Treasury yield still deserves careful monitoring as a proxy for any adjustments in the general outlook for the macro/financial weather. For the moment, the forecast calls for more of the same: moderate growth, which is supported by a gradual rise in rates...at least for now. Granted, that’s a developed-economy perspective. By contrast, the view from emerging markets in recent months has been quite different, based on the assumption that the end of easy money policies in the US will create new headwinds for the likes of China, India, Brazil, and so on. Maybe so, but consider the recent revival in emerging markets stocks over the past week. Perhaps the crowd is recognising that higher rates that reflect marginally higher confidence about the US macro outlook is good news for the global economy too.