Economic Data Lines Up Behind US Rate Hike

Daily Analysis - 04/12/2016

Stronger Payroll and GDP Figures Set the Stage for December Action

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Another positive week is in the books for the US economy after a better than anticipated reading on job creation and accelerated growth throughout the economy has brightened the outlook.  Adding to the optimism was the arrival of an OPEC production cut deal, sending energy prices soaring.

 

Last Week


With just a week and a half to go until the next decision from the Federal Reserve on US interest rates, data pertaining to gross domestic product and nonfarm payrolls have generated positive sentiment.  While the Trump-driven rally may be fading, speculation of a near-term rate hike remains high, especially after third quarter GDP was upgraded to 3.20% while the labor economy produced 178,000 new jobs.  The revision higher in GDP comes ahead of the final reading due in December while the unemployment rate dropping to 4.60% might ease the Fed’s concerns about slack in the labor market.  Besides the improvement in the US unemployment rate was the better figures from the Euro Area.  Joblessness in the Eurozone fell to 9.80% during the month of October, marking the best reading since July of 2009.  While inflation remained on hold on both a core and headline basis, the figure may rise further if the ECB pledges to extend its asset purchase program.  In one of the biggest headlines of the week, OPEC pledged to cut output to 32.500 million barrels per day, surprising oil futures which rallied in response.  Despite concerns about implementation, Russia is also onboard, pledging to cap its own output to help support energy prices.

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The Week Ahead


Although an abundance of economic indicators are due throughout the week, the one major event that could rapidly unravel the momentum in risk assets is the Italian constitutional referendum.  Should the populace vote against proposed measures to consolidate the government and add stability, the threat of Prime Minister Matteo Renzi stepping down could send shockwaves throughout the Euro Area.  On the GDP front, Japan and Australia are set to revised GDP results from the third quarter, with Japan expected to see an upgrade as Australian expansion tapers.  Finally, to cap off the week, China will be releasing its latest trade statistics alongside data pertaining to consumer and producer inflation.

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