Financial Markets – Preview for Week Starting 7th February 2016

Major Events of Last Week

The pivotal event of last week occurred on Friday when the USA published its early awaited labor report for January, which evolved into a strange affair. This is because although US employers created fewer new jobs than expected, this document still contained some encouraging statistics. For example, the unemployment rate declined to register an eight-year low and wages surged during the month. Consequently, revitalized prospects of further rate hikes by the US Federal Reserve prompted global equities to sell-off and the US Dollar to strengthen against a basketful of other major currencies. The foremost US indices plummeted last Friday exemplified by the Dow Jones Industrial Average crashing just over 210 points; the S&P500 falling by almost 41 points and the NASDAQ dropping by nearly 155 points.

The USA released key economic data towards the end of last week demonstrating that the rate of production of new jobs slumped severely during January. The primary catalysts for this deterioration were significant layoffs in Christmas festive hiring. Specifically, Nonfarm Payrolls disclosed that just over 150,000 posts were generated last month compared to the predicted 190,000.

Without doubt, this result was definitely disappointing at first sight. However, a more detailed study provided a substantial boost in confidence. For example, wages staged a recovery during January illustrated by Average Hourly Earnings growing by 0.5% producing an annual gain of 2.5%. In addition, the unemployment rate dropped by 5.0% to 4.9% recording its lowest level since 2008. After analyzing the labor report diligently, prominent economists advised that investors should now not so quickly dismiss a second rate hike by the Fed in March. They primarily based this advice on the premise that a number of key statistics presented within the document were in compliance with the targets set by the US central bank.

Prior to this event, many investors had markedly reduced their expectations of further Fed hikes within the short-term amid escalating geopolitical uncertainties and indications of a serious global economic slowdown. The US labor report certainly made them revise their forecasts late last week resulting in the financial markets plummeting and the US Dollar recovering its composure across the board.

To place the US labor results supplied last Friday into perspective, Janet Yellen, the Fed Chairperson, recently advised that the US economy needed to generate about 100,000 new posts monthly in order to sustain the current growth of the US workforce. Consequently, the resultant uplift acquired from the promising US labor report is now expected to counter the negativities created by a significant US economic slowdown registered in the last quarter of 2015.

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What to Expect This Week

Australia is scheduled to present a key Business Confidence Survey late Monday EST. Despite printing a continuous stream of positive figures since the middle of 2013; Chinese economic woes have increased the possibilities of a negative result this time around.

On Tuesday, Australia will disclose a major Consumer Sentiment Index for last month which is also predicted to register a slump following a sequence of positive monthly results.

The United Kingdom will launch