FEBRUARY NFP – Trade Wars Ahead Add Pressure to DOLLAR, Employment Report Weighty.
This article is originally referred from FXPrimus - Stavros Tousios, FX Market Specialist..
Last month BLS reported a 200K change in the number of employed people, picking up from December’s 160K (revised from 148K) and printing a higher figure than economists’ expectations as the US economy accelerates.
Unemployment rate remained steady at its 2000 low for a 3rd consecutive month while average hourly earnings rose 0.1% compared to the previous month and a 2.9% compared to last year, a 2009 record, confirming accelerating inflationary pressures which may weigh in on Fed’s rate hike expectations.
With a spike in Yields market participants sent the equity markets plunging following the Friday event yet S&P is still up 3.2% year to day (YTD).
US Change in Nonfarm Payrolls is at a current level of 200K, up from 160 last month and down from 259 one year ago.
Despite US published a good headline number one would remember that the surge was partially contributed to market’s reaction on the wage appreciation as investor believed Fed’s rate hike view would change, and the likelihood of course of another rate hike has now increased.
What to look for in February’s report…
- US and EU Interest Rate differentials: The Fed kept the interest rates steady in the January 31st FOMC with little change in the statement. The data was still, and is still, positive as Fed combined strong ongoing data with the continued downward pressure on unemployment, however, the differential is not yet affected, but could have a small weight on the Euro. Note that ECB is expected to deliver their rates on Thursday this week.
- ISM Non and not Manufacturing Employment Index: With US getting closer to full employment it seems that February’s increase of 5.5% and 5.3% (Non-Manufacturing) will keep adding pressure to labor market as employment is expanding at a much faster rate than production. This sets a positive outlook for hiring considering the gains in 2017 payrolls and could lead to further raise in wages and boost demands given the recent tax changes.
3. Consumer Sentiment and the Stocks Market: US Consumer Sentiment rose to 99.9, a 2004 record, despite inflation expectations remained the same as employment gains and the implementation of the Trump-Tax plan sent Yields spiking and equites to their first correction in two years. Note that sentiment is likely to fall in the coming months following the upward tilt in borrowing cost.
4. US Treasury Yields: Yields and the Dollar gained while equities subdued, however, over the past few days Trump’s agenda on metal tariffs have had a negative impact on all the above, yet, not as much on the Yields as Powell’s speech was marked as bullish. US Yields fall while Treasury Rates go up.
5. Unemployment Claims: The Unemployment Claims give us a glimpse of what the employment situation looks like o n a weekly basis. Unemployment Claims fall to 45-year low last week while the figure for the week before was also revised downward. The 4-week moving average was 2,250 lower from the previous week’s revised average. The previous week’s average was revised down by 250 only.
6. Oil price and inflation figures: Oil prices are a major input to the US economy and have a direct impact on inflation. OIL prices corrected below $60 per barrel last month while the Core CPI remained unchanged at 0.3% (exp 0.2%, prev 0.3%) but better than expectations. Without necessarily this being bad news the pickup is likely to be a challenge for Federal Reserve as a strong inflation will require tighter policy.
Original Source: FXPrimus - Stavros Tousios, FX Market Specialist.