Major Events of Last Week

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Investor confidence took a direct hit last Friday when the US Department of labor issued its highly-anticipated Non-Farm Payroll (NFP) for May which badly missed economists’ expectations. American employers generated the smallest monthly job growth in practically 5 years. Those companies, operating within the construction and manufacturing sectors, were especially hurt by recording extensive labor losses. This worrisome collapse could now be a sufficient catalyst capable of deterring the US Federal Reserve from implementing an interest rate hike later this month. The leading US indices slumped last Friday illustrated by the Dow Jones Industrial Average falling 23 points; the S&P500 inching 5 points lower and the NASDAQ dropping by 28 points.

The global markets were definitely taken aback late last week when the USA posted key economic data disclosing that its critically important Non-Farm Payrolls grew by just 38,000 new jobs during May compared to expert consensus of about 158,000. One of the main factors driving this surprising flop was the recent four-week strike by Verizon employees which directly resulted in the Information Technology sector shedding nearly 34,000 jobs. In addition, the US labor report revealed even more disappointing news by informing that nearly 60,000 fewer workers were employed during March and April than previously advised.

On conceivably a brighter note, the US unemployment rate declined from 5.0% to 4.7% although this encouraging improvement was primarily driven by large numbers of Americans opting out of the workforce as opposed to gaining new posts. Both equities and the US Dollar crashed last Friday following the release of the dismal US Labor Report. Prominent economists summarized the impact of this worrisome document by stating that it will now place the US Federal Reserve in a far more uncomfortable position. This is because the weak NFP and deteriorating participation rate do not provide the ideal foundation for the Fed to instigate an interest rate hike in the next couple of months.

The US Central Bank may especially be disappointed by a weakening US labor market since it has recently flagged strong intentions to hike interest rates if economic conditions permit. For instance, Janet Yellen, the FED Chairperson, asserted only last week that further rate hikes may be appropriate if the US economy continues to garner traction. However, last week’s insipid NFP has definitely dampened these aspirations by effectively countering all the positives generated by a recent spate of impressive indicators, such as housing, exports, industrial production and consumer spending. Analysists are specifically worried that economic growth may now be stalled about the 0.8% quarterly mark.

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What to Expect This Week

After last week’s hectic session, this week will be a relatively quiet affair.

No major economic events or data releases are scheduled for Monday.

On Tuesday, the Reserve Bank of Australia (RBA) will announce its latest interest rate decision and future guidance policies. Although a ‘No Change’ verdict is the current expert consensus, investors will, nevertheless, scrutinize all accompanying statements in order to glean any insights into whether the RBA intends trimming its interests rates within the imminent future. Later, the United Kingdom will disclose a key housing statistic which should confirm that this vital trading sector is still in recession. The Halifax Index is predicted once again to hover about its -0.8% mark. Japan will complete the session by revealing its Gross Domestic Product for the first quarter of 2016. Traders are presently favoring modest growth of 0.4%.

Canada will launch Wednesday by presenting its ‘Housing Starts’ for last month. This important parameter should provide evidence that the Canadian economy is starting to rebound from recent weakness. The Reserve Bank of New Zealand (RBNZ) then will pronounce its latest interest rate decision and monetary easing policies. Again, the RBNZ is forecasted to remain steady by leaving its benchmark rates untouched. However, economists will be particularly interested in studying the accompanying policy statements which should endorse RBNZ’s intentions to trim rates sometime during the summer.

On Thursday, the USA will publish its ‘Jobless Claims’ for last week ending the 4th June. This figure will take on greater significance this time around following the posting of a dismal US labor report last week. Specifically, traders will be keen to discover if the result will reside within its long-term range between 250k and 290k or if it will reflect the weakness demonstrated by the recent Non-Farm Payroll number.

Canada will issue its Labor Report for May on Friday which should extend a recent monthly slump by delivering another loss of about 2,000 jobs. The USA will finish the week by disclosing its ‘Consumer Spending’ for last month. A value above the 94 handle is currently the preferred prediction.

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