Major Events of Last Week

Stock Market
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A pivotal event occurred last Friday when the US Department of Labor published its eagerly awaited Non-Farm Payroll (NFP) figure for February. At first glance, the headlines appeared to be very impressive by disclosing a significant rebound from January’s dismal showing of about 150,000 to just over 240,000 this time around. However, deeper scrutiny unearthed that the details were not as promising by confirming that both the average hourly earnings and the average weekly hours had unexpectedly receded last month. Consequently, analysts concluded and advised that a March interest rate hike by the US Federal Reserve is no longer a viable option. The foremost US indices strengthened last Friday exemplified by the Dow Jones Industrial Average climbing by just over 58 points; the S&P500 nudging higher by 6 points and the NASDAQ rising by nearly 11 points.

Investor sentiment received an initial boost late last week when the US Non-Farm Payrolls revealed that US employers created slightly over 240,000 new jobs during last month surpassing market predictions of 200,000. This better-than-expected result added further credence to the viewpoint that the US economy is now certainly not on the brink of entering a new recession. Although, the disappointing inflationary aspects of the labor report undoubtedly removed a Feb rate hike in March from the table; prospects were, nevertheless, bolstered that the US Central Bank will be able to instigate gradual increases as this year progresses.

Other key details of the US labor report were as follows. The US unemployment rate held steady at 4.9% even though the number of Americans seeking work rocketed sharply last month. Average hourly earnings recorded a surprise decline of -0.1% by registering their first monthly drop since late 2015 and just the sixth one in the last decade. Average weekly hours also generated a worrisome result by falling significantly by 0.2 points to 34.3. Prominent economists summarized these important developments by advising that although continuous job growth was, unquestionably, a step in the right direction; poor wage data stole the show by undermined this positive performance. They added that, perhaps, some seasonal catalyst was the prime cause behind this unexpected negativity.

In summary, an improving US labor market, rising inflation and strengthening economic growth could now supply the US Federal Reserve with a firm basis for steadily hiking interest rates as 2016 progresses. Another report was posted last Friday advising that the US trade deficit increased during January by nearly $46 billion missing market expectations of -$44 billion. Declining global demand and a strong US Dollar were the primary factors behind this troublesome outcome as they combined to drive exports downwards to hit six-year lows.

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What to Expect This Week

After the turbulence and drama caused by the release of the NFP last Friday, there are just a minimum of market-moving events scheduled for this week.

Japan will commence proceedings by presenting its Gross Domestic Product on Monday. Analysts are hoping for a rebound from the previous reading of -0.4%. If not, then a poor result could prompt the Bank of Japan to introduce more monetary easing policies within the imminent future.

On Tuesday, Switzerland will disclose its latest Consumer Price Index (CPI), which is expected to contract once again. The Swiss economy is heavily correlated to that of its close neighbor, Europe, which is still struggling to counter the threat of deflation.

The Bank of Canada will release its interest rate decision on Wednesday together with an accompanying statement. As a ‘no-change’ decision is currently the favored forecast, this event could well be a non-affair. However, if the statement delivers a dovish bias, as widely anticipated, then the Canadian Dollar could come under stern pressure.

On Thursday, a pivotal event will occur when the European Central Bank (ECB) releases its interest rate decision and latest forward guidance policies. Investors will be very keen to learn if the ECB will, indeed, initiate any new monetary easing actions in order to boost the flagging European economic recovery and suppress deflation. As Mario Draghi, the ECB President, has strongly hinted in recent weeks that this will be the case, then the markets could experience a new wave of extensive volatility next Thursday. Later, the USA will post its jobless claims for the previous week which should hover once again about the 275k mark.

Canada will complete the week by publishing its labor report for February. Expert consensus is forecasting that Canadian employers created about 5,000 fewer jobs last month compared to its prior reading.

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