Major Events of Last Week
After experiencing a relatively quiet week, these conditions changed dramatically last Friday when the USA published its vitally important labor report for February surpassing analysts’ expectations. The number of jobs created by US employers rose to 295,000 from 239,000 in January. In addition, the US Jobless rate fell to 5.5% recording its lowest value since before President Barack Obama initially took office. This stellar report will now exert significant pressure on the US Federal Reserve to instigate an interest rate hike as early as this coming June. The leading US indices reacted to these developments by plunging sharply last Friday exemplified by the Dow Jones Industrial Average crashing by nearly 280 points; the S&P500 dropping by almost 30 points and the NASDAQ slumping by just over 54 points.
The US Department of Labor presented its early awaited Non-Farm Payroll (NFP) figure last Friday which excited both the markets and investors alike by registering its twelfth consecutive month of gains, in excess of 200,000. This stellar performance was achieved despite many parts of the USA suffering extreme wintry conditions recently. Prominent economists summarized the impacts of the NFP by advising that the US Labor market was now definitely strengthening at an impressive rate. After studying the details of the figures presented, they further concluded that the Fed should now be prompted to hike rates this summer. This is because encouraging signs will clearly demonstrating that the US economic recovery was undoubtedly countering the numerous worrisome geopolitical events.
Another significant feature about the US labor report was that it fell within those limits, recognized by the Fed, as denoting a status of full employment. As such, the US Central Bank will now be pressurized to implement positive action since it has constantly advised that its decisions are data-driven. Even though inflation and wage growth remain muted, a substantially improving labor market should force a rate hike as early as June. As such, the burning question is now ‘how long will the Fed support historically low interest rates if the unemployment rate drops below 5%’, as predicted by many leading economists later this year.
Further insights into the Fed decision process will surface during the course of this coming week. If US Retail Sales rebound in February following two successive months of losses, then such an outcome will definitely boost prospects of an early US interest rate hike. This is because a positive result will confirm that consumer confidence is climbing amid persistently declining oil prices. In fact, many key Fed officials are already backing a June hike. For instance, Jeffrey Lacker, President of Richmond Federal Reserve, endorsed this viewpoint late last week.
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What to Expect This Week
The ensuing global economic indicators will be presented over the course of the coming days.
Japan will start the week early by releasing its Gross Domestic Product for the fourth quarter of 2014 on Sunday. If the expected growth number is posted, i.e. 0.6%, then this event is not expected to be market moving.
The ECOFIN and Eurogroup are both scheduled to convene meetings on Monday. The euro could come under pressure if any new uncertainties emerged about the Greek debt crisis.
On Tuesday, Chinese will disclose its Consumer Price Index (CPI) for February. Although a 0.8% outcome is predicted, such a result may be difficult to achieve this time around.
The United Kingdom will launch Wednesday by revealing its Industrial and Manufacturing Production figures for last month. Sterling should be boosted if both these parameters can register positive returns. Later, the Reserve Bank of New Zealand (RBNZ) will deliver its Interest Rate Decision and Future Guidance Policy. No changes or surprises are expected.
Australia will publish its Labor Report on Thursday and a second successive month of declines could prompt the Reserve Bank of Australia to activate an interest rate cut in the imminent future. Next, Great Britain will issue its Trade Balance for January and the predicted growth should benefit the British pound. The Eurozone will then declare its Industrial Production for January. Pundits are favoring an improvement since recent European data releases have surprised to the upside. The USA will complete the session by proclaiming its early awaited Retail Sales for February. Current probabilities are high that this key parameter could miss its mark especially following two straight months of losses.
Canada will commence proceedings on Friday by presenting its Labor Report for last month. Expert consensus is presently forecasting that 21.3k jobs were created during February. Next, the USA will release its Producer Price Index for last month. If this parameter reports an increase in inflation towards the Fed’s target of 2%, then the prospects of a June interest rate hike will be enhanced even further. Finally, the USA will terminate the week by disclosing a key Consumer Sentiment Index for this month. The greenback will acquire fresh support if this parameter reports a rise.
