Hypothesis: Stronger-than-expected wage growth will push inflationary pressures higher, leading the Federal Reserve to delay any potential rate cuts. Based on the Phillips Curve, which explains the inverse relationship between unemployment and inflation (Blanchard & Johnson, 2017), the Fed may be more concerned about keeping inflation under control rather than stimulating the labor market further.
Hypothesis: A declining trade balance in China will reduce European export demand, particularly in the automotive and industrial sectors. Weakening Chinese trade figures could lead to a slowdown in German manufacturing, further exacerbating the already fragile Eurozone economy.
Hypothesis: The ECB may cut rates to support economic growth in the Eurozone, especially in countries like Germany where manufacturing has been hit hard by energy shortages. This is consistent with monetary policy theory, where central banks cut rates to stimulate investment and spending when growth is weak (Friedman & Schwartz, 1963).
Hypothesis: A weaker-than-expected labor market report could push the UK closer to stagflation, pressuring the Bank of England to keep rates lower for longer. This would weaken the pound as investors seek higher yields elsewhere (Campbell & Shiller, 1998).