London/Bangalore, Nov 7

A cloud of pessimism may have burned off for many investors on a bright October US jobs report, but much of the global economy — including China, which not long ago was a top worry for the US Federal Reserve — remains vulnerable.

With markets having swung in just a few weeks from pricing out a Fed interest rate hike next month to a strong likelihood it will take place, however, economic releases in coming week may be judged simply as supporting evidence.

The US jobs report not only revealed more hiring than even the most optimistic of 101 forecasters polled by Reuters, but the unemployment rate fell to five per cent and average pay growth accelerated to a solid 2.5 per cent annual pace.

That pushed the dollar sharply higher against the euro on optimism the US economy may be stirring out of a fitful, uneven expansion into something more vigorous.

Analysts and Fed officials had mused beforehand about how to clearly explain that a slowing labour market is still capable of generating inflation, but that obstacle to a putative December rate hike has now been substantially removed.

For most Fed officials who have commented, average monthly payroll growth of more than 180,000 since August is more than enough for them to be satisfied the job market is tightening at a strong enough pace.

Such optimism has its consequences, mainly a stronger US dollar, which itself has kept a lid on growth, particularly among manufacturers who are more vulnerable to rising prices on a competitive international market.

That dollar strength also has wreaked havoc on emerging markets, sending freely floating currencies plummeting, and even forcing China to modestly devalue the yuan.

While China’s reported growth rate has barely slowed, other data suggest its central bank has been right to cut interest rates six times in a year, with more stimulus seen in pipeline.

“While the Chinese slowdown is going to take the edge off some of the growth figures in the major industrialised nations, so long as it’s not an outright collapse, the growth picture remains intact — that is to say, modest,” said Peter Dixon, global financial economist at Commerzbank.

Declines in both exports and imports are expected to be less pronounced than a month before in Chinese trade data due on Sunday and industrial output is forecast in a Reuters poll to have expanded at a slightly faster pace in October.

Investment is forecast to have weakened to the lowest in many years in October with a cooling in bank lending. Inflation is expected to slow to just 1.5 per cent, extremely weak for a developing economy with such a high reported growth rate.

Growth data for the eurozone due on Friday are expected to be decent, but not spectacular. Economists polled by Reuters expected quarter-on-quarter growth of 0.4 per cent for the July-September period, steady on the prior quarter.