Major Events of Last Week

Financial Market News
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A major global event occurred last Friday when the USA posted its eagerly awaited labor report for April. Investors were caught wrong-footed by weaker-than-expected details disclosing that US employers created just 160,000 new jobs last month compared to the predicted 205,000. Further news revealed that an increasing numbers of discontented Americans exited the workforce in droves during April. These worrisome developments immediately reduced prospects that the US Federal Reserve will hike its interest rates in June. Other key parameters revealed that the ‘Unemployment Rate’ remained steady at 5% and that ‘Average Hourly Earnings’ recorded a monthly increase of 3%. The primary US indices rallied last Friday exemplified by the Dow Jones Industrial Average surging 64 points higher; the S&P500 rising by 3 points and the NASDAQ climbing by 10 points.

The US Department of Labor published its Non-Farm Payrolls (NFP) towards the end of last week which reported its lowest growth since the autumn of 2015. Officials subsequently identified the bearish catalysts driving a declining NFP of 160.000 jobs as dismal performances in both the crucial US retail and construction sectors. The scope of the slump can best be appreciated by comparing April’s dismal number with the average monthly growth of 200,000 during the first quarter of 2016.

Another particularly disturbing attribute of the US report was that the labor force participation rate plummeted by 0.2% last month to print a final value of 62.8%. After carefully scrutinizing this document, prominent analysts later advised that its specifics bolstered concerns that the general weakness in the US economy was now beginning to infiltrate the US labor market.

Average Hourly Earnings (AHE) did provide some encouragement by climbing almost 8 cents and complying with its forecasted value of +0.3%. Consequently, annualized AHE rose from its prior reading of 2.3% to 2.5% although it still remained beneath the coveted 3.0% mark required to drive inflation towards the Fed’s designated target of 2%. Nevertheless, the poor NFP may now cause the US Central Bank to revise its latest hawkish evaluation of the US labor market when it recently stated that it had ‘improved further’.

Specifically, the Fed has predicted that it should be able to hike interest rates at least twice more during 2016 after instigating the its first increase last December for the first time in almost a decade. However, revered economists are now warning that the dismal NFP may dramatically reduce the possibilities of a rate hike in June. They further assess that the probabilities of such an event occurring in September/November now resides at about 50% and one in December of 59%.

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What to Expect This Week

China will launch the week by presenting its ‘Trade Balance’ for April on Sunday. Investors will scour this parameter very carefully in order to glean any new insights into the true health of the Chinese economy.

On Monday, the United Kingdom will declare a key housing statistic which is expected to extend its recent growth trend. However, if the March’s result of 2.6% is missed, then Sterling could come under renewed pressure.

China is also scheduled to disclose a spate of critically important inflationary indicators on Tuesday. Again, this data will be intensely assessed in order to determine whether the world’s second largest economy is really recovering or if it is sliding backwards into recession.

No major global events or data will be released on Wednesday.

On Thursday, the Eurozone will reveal its ‘Industrial Production’ for April which is forecasted to rebound from its previous dismal print of -0.8%. A positive outcome is required in order to provide much-needed proof that the latest stimulus measures of the European Central Bank are starting to bear fruit. Next, the Bank of England (BoE) will announce its latest interest rate decision and monetary policies. Although a ‘no change verdict’ is widely anticipated, analysts will study any accompanying statements carefully with the primary intent of discovering exactly how the BoE intends to cope with a potential Brexit.

The USA will then issue its ‘Jobless Claims’ which should confirm that the number of US Citizens filing new claims for unemployment benefits during the week ending 1st May continued to reside with the long-term range of 240k to 290k. New Zealand will complete the day by publishing its ‘Retails Sales’ for last month. The Reserve Bank of New Zealand will be hoping for a good result in order to justify its recent surprising decision of keeping its interest rates unchanged.

Both Germany and the entire Eurozone will release the first sightings of their Gross Domestic Products on Friday. The former should provide growth of 0.3% demonstrating that the economic powerhouse of European continues to thrive. The latter should ratify that the economy of the currency bloc is beginning to benefit from the ECB’s aggressive monetary policies by posting a 0.6%+ increase. Finally, the USA will terminate the week by delivering its ‘Retail Sales’ for last month. A recovery from the prior depressing result if -0.3% is badly needed in order to confirm that the US economy is now gaining traction after suffering an insipid first quarter.

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