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AM Bulletin: Equities and oil slip in early trade
31 Mar 2016
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31 Mar 2016
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30 Mar 2016
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11 Mar 2016
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07 Mar 2016
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07 Mar 2016
March: Non Farm Payrolls Out Today
04 Mar 2016
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04 Mar 2016
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03 Mar 2016
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03 Mar 2016
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 Thursday 03 March 2016

PM Bulletin: Non-Farm Payroll look-ahead

 

 

It certainly comes round quickly. Tomorrow sees the release of the latest US Non-Farm Payroll data. As noted in previous commentaries, this is probably the most eagerly anticipated of all economic data sets, as it covers the employment situation of the world’s largest economy. It is of particular importance given the Federal Reserve’s dual mandate of ensuring maximum employment and maintaining price stability (targeting an inflation rate of 2%).

This will also be the last Non-Farm Payroll update before the US Federal Reserve meets on 15th/16th March. This will be the first quarterly meeting since December which was when the Fed finally bit the bullet and raised rates for the first time since June 2006. The FOMC will also release its latest Summary of Economic Projections and Fed chairman Janet Yellen will hold a press conference. In other words, if the Fed really felt that rates should go up again ahead of the summer, this would be the time to announce it.

Now the Fed has made it abundantly clear that its rate decisions are data-dependent. At the same time, it has to walk a tricky path in persuading investors that the US economy is heading in the right direction while not so strong that it will raise rates by as much as 1% in 2016. US economic data since the beginning of the year has been patchy to poor. Manufacturing and Services PMIs, Durable Goods and the most recent Consumer Confidence numbers have all disappointed. On the flip side housing, employment and Average Earnings are relatively bright spots while the jury is still out on Factory Orders, Retail Sales and Industrial Production.

Yesterday’s ADP payrolls rose 214,000 against an expected increase of 185,000. Last month’s number was revised down to 193,000 from 205,000, but overall this was a decent number and bodes well for tomorrow’s Payroll release.

The consensus expectation is for a rise of 195,000 jobs in February. This would represent a solid increase on last month’s reading of 151,000 which was well below the 189,000 consensus expectation. On top of that, December’s number was revised down sharply. The trouble is that it’s quite difficult to predict how investors will react to data that comes in better, or worse, than expected. Last month, the poor numbers led to a sharp sell-off in US equities which saw the Dow Jones Industrial Average lose around 5% over the next few days. It was only Fed Chairman Janet Yellen’s testimony in Washington the following week which triggered a rally that has continued until now.

Now we know that the Fed has had to dial back from the rate hike projections it made in December. Nevertheless, the central bank wants to give the impression that it has every confidence in the US economy. Yet it probably daren’t risk another rate hike this month (or being too hawkish) for fear of triggering a big risk-off move. So while a poor headline payroll number (say, below 160,000) should initially be negative for equities and the dollar, it may reassure investors that the Fed will delay its next rate rise until June or beyond. A strong number (above, say, 220,000 ignoring revisions) should spark an initial increase in risk appetite. But that may not be sustained if the prospect of a June rate hike becomes embedded in the market’s consciousness. 

Disclaimer:

Spread Co is an execution only service provider. The material on this page is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by Spread Co Ltd or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

 

Posted by David Morrison

Tagged: Bulletin PM

Category: PM Bulletin


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