World Week Ahead: US jobs data, Fed minutes

Monday 3rd April 2017

Investors will closely watch the latest US jobs data to gauge the likelihood that the Federal Reserve might lift interest rates at a faster pace than it has so far signalled.

The ADP employment report will be released on Wednesday, followed by weekly jobless claims on Thursday, and the government’s all-important nonfarm payrolls report on Friday.

"Focus is also likely to be on the average hourly earnings component of the report and whether the tightening labour market is leading to wage pressures — if it is then the US Fed could become even more hawkish than the market is expecting,” National Australia Bank Markets Research said in a note.

First, minutes of the March Federal Open Market Committee meeting, during which policy makers agreed to lift the target rate by a quarter percentage point, are due for release on Wednesday.

So far the Fed has flagged intentions to hike rates three times in 2017; however, last week the Fed’s Eric Rosengren and John Williams suggested more might be warranted.

On Friday, New York Fed boss William Dudley said he thinks two more increases this year would be reasonable, adding “there’s not this huge rush that we have to tighten monetary policy quickly.”

Fed officials scheduled to speak this week include Dudley and Jeffrey Lacker today, Daniel Tarullo on Tuesday, and Dudley again on Friday.

Other US economic data released in the coming days include the PMI and ISM manufacturing indices, and construction spending, due today; motor vehicle sales, international trade, and factory orders, due Tuesday; PMI services index, and ISM non-manufacturing index, due Wednesday; as well as wholesale trade, and consumer credit, due Friday.

Last week, the Dow Jones Industrial Average rose 0.3 percent, the Standard & Poor’s 500 Index gained 0.8 percent, and the Nasdaq Composite Index climbed 1.3 percent. All three benchmarks ended lower on Friday.

The S&P 500 advanced 5.5 percent in the three months ended March 31, its strongest quarterly performance since the last quarter of 2015, according to Reuters.

“As first quarters go it’s been a solid start to the year for 2017,” Michael Hewson, a market analyst at CMC Markets in London, wrote in a client note, Bloomberg reported.

“Economic data by and large has been pretty good across the board from the US, UK, Europe and Asia, while rising inflation has prompted some optimism that we could see some trickle-down effects into higher wages,” according to Hewson.

The downside of the recent gains is that stocks are expensive relative to earnings.

“Valuations are as stretched as they ever get,” Bruce Bittles, chief investment strategist at Robert W Baird & Co in Nashville, told Reuters. "Certainly that's cause for concern if earnings don't grow the way they are anticipated to grow."

In Europe, the Stoxx 600 Index closed 0.2 percent higher on Friday. That brought its gains for the first quarter to 5.5 percent, according to Bloomberg.

Investors will scrutinise the minutes of the latest European Central Bank meeting, slated for release on Thursday, for fresh clues about how quickly the central bank might become less accommodative in its monetary policy.

Key data watched include reports on euro-zone unemployment today and retail sales on Tuesday.

Oil prices have benefited from bets that OPEC will extend its agreement to curb production, with futures climbing 5.5 percent in New York last week.

"There’s renewed hope that OPEC and non-OPEC producers will improve adherence and extend the production cuts," John Kilduff, a partner at Again Capital, a New York-based hedge fund that focuses on energy, told Bloomberg.

(BusinessDesk)

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