US Nonfarm Payrolls Blow Past Estimates

Daily Analysis - 12/03/2017

Job Creation Pickup and Unemployment Dip

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Following better than anticipated employment numbers, market sentiment is firmly on the side of the FOMC tightening monetary policy.  With the final piece of the dual mandate puzzle in place, the US Federal Reserve may have all the evidence it needs as it heads into its March FOMC Meeting later this week.

Last Week


As rate hike speculation hits fever pitch, a positive employment reading has raised the probability of an imminent rate hike.  The latest figures published by the US Bureau of Labor Statistics showed 235,000 jobs added during the month of February, bringing the unemployment rate to 4.70%.  Two of the surprising drivers were construction and manufacturing hiring for the period.  Although the US dollar fell after the announcement, gold briefly retreated below the $1200 mark before managing to regain the psychological level.  Apart from US data, the European Central Bank unveiled its latest decision, keeping rates and easing measures on hold while taking a more optimistic stance towards risks.

Although the inflation outlook was upgraded, low rates are expected to endure past the expiration of the asset purchase program.  Moving east, Japanese fourth quarter GDP was revised modestly higher, but failed to meet expectations as policymakers warn on growing volatility in the Yen and its impact on exporters.  China also received unwelcome news as inflation dipped to the lowest point in two years, stressing the challenges as officials work to meet Premier Li Keqiang’s ambitious expansion targets.  Finally, oil pressures found themselves under serious strain as growing US production accompanied by rising stockpiles threaten to undo the OPEC output cuts.

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The Week Ahead


The main event in focus for the coming sessions is the two-day FOMC Meeting beginning on the 14th that culminates with a decision regarding monetary policy on the 15th.  In what is likely to be an explosive decision, the Federal Reserve is currently expected to raise interest rates by 0.25% to 1.00% from the current 0.75%.

Aside from the US Central Bank decision, the Bank of England, Bank of Japan, and Swiss National Bank will also debate monetary policy and present their own decisions.  At present, no changes are forecast for the BoJ and SNB’s bold negative interest rate policies while the Bank of England is also expected to remain on hold ahead of the government triggering Article 50 to begin EU exit negotiations.  Apart from the central bank decisions that dot the week, inflation data from the United States and Euro Area is set to be delivered.  Core inflation is largely expected to stay the same as the impact of rising energy costs remains a transitory factor for headline inflation.  Rounding out the week is industrial production data from China, UK and Australian unemployment measures, alongside US retail numbers and the final fourth quarter gross domestic product figures from New Zealand.

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