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US Payrolls Smash Estimates

Daily Analysis - 05/02/2017

First Labor Report of 2017 Shows Slight Uptick in Unemployment Rate

nfp-report


Rounding out a week of decisions from major global central banks was the US nonfarm payrolls report on Friday.  Although the 227,000 jobs added during the month of January beat expectations by a wide margin, it was not enough to slow the tide of a record number of Americans outside the labor force.

Last Week


Central banks and politics dominated the newswires last week as decisions from advanced economies were accompanied by the monthly US payroll report and a growing standoff with Iran.  Central banks largely refrained from adjusting monetary policy in any demonstrable way, with both the Bank of Japan and Bank of England keeping rates on hold at -0.10% and 0.25%.

Each country upgraded their growth forecasts for the whole of 2017 with the Bank of England also focusing on the possibility of hitting the inflation target in February.  Across the Atlantic, the United States Federal Reserve left interest rates on hold at 0.75% while remarking that inflation will rise to the 2.00% targeted.  At this point, only two rate hikes are anticipated during the calendar year.

Moving back to Europe, the Euro Area is experiencing a revival as evidenced by the unemployment rate at the lowest point since 2009 while inflation hits the highest point since 2013.  However, a new Greek debt crisis could add to political upheaval as populist and anti-EU parties gain traction. Meanwhile, an Iranian ballistic missile test accompanied by new sanctions is raising tensions while fueling an additional rally in oil prices just as the OPEC deal eliminated 1.400 million barrels per day in excess capacity during January.

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The Week Ahead


More central bank decisions will be following in the sessions ahead as both the Reserve Bank of Australia and the Reserve Bank of New Zealand unveil their own decisions while releasing their guidance.  Neither central bank is expected to adjust interest rates, however, low inflation may raise the specter of additional easing measures during the second quarter should inflation, GDP expansion, and employment growth remain tepid.

Besides the decisions from the relevant monetary policy committees, fundamental data points will be relatively scarce throughout the week, including figures pertaining to UK manufacturing production and the unemployment rate in Canada.  Earnings season is still well underway, with major earnings reports due from carmakers General Motors and Tesla.  Global beverages provider Coca Cola will also be releasing results along with embattled social news and networking platform Twitter.

Besides the financial backdrop, expect more bellicose rhetoric to come from both the United States and Iran as the focus shifts to the ongoing tensions in Yemen and the Bab el Mandeb Straits.  With the US recently moving the USS Cole destroyer into position near the Strait to defend shipping routes, it could spark greater tensions with Iran, potentially adding another few points of risk premium into oil prices over the near-term.

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