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US rates going up, Australian unemployment going down?

Sunday, 12 Mar 2017 08:31:04 | Stephen Letts

The Federal Reserve will announce whether they will increase interest rates on Thursday morning. (Commons: AgnosticPreachersKid)

Stronger-than-expected jobs growth in the US has pretty well settled the Federal Reserve's plans to push interest rates up this week.

Global markets seem to overcome their fear of rising borrowing costs, with Wall Street and European stocks generally posting reasonable gains on Friday.

Locally, futures traders were not overly enthused, with the ASX SPI 200 up just 0.1 per cent over the weekend, although the market overall had a pretty solid week.

Markets on Friday's close

  • ASX SPI 200 futures +0.1 per cent at 5,782
  • AUD: 75.38 US cents, 70.61 Euro cents, 61.96 British pence, 86.58 Japanese yen, $NZ1.09
  • US: Dow Jones +0.2 per cent at 20,903 S&P500 +0.3 per cent at 2,383 NASDAQ +0.4 per cent at 5,386
  • Europe: FTSE +0.4 per cent at 7,343 DAX -0.1 per cent at 11,963 Eurostoxx50 +0.2 per cent at 3,416
  • Commodities: Brent oil -1.6 per cent at $US5137/barrel, Gold +0.3 per cent at $US1,204/ounce, Iron ore (Nymex) +0.1 per cent at $US84.80/tonne

Non-farm payrolls in the US grew by 235,000 in February, well ahead of the recent trend, with the construction sector putting on more workers than in any month over the past decade.

Unemployment edged down another notch to 4.7 per cent and even wages started to pick up some momentum.

That, coupled with inflation starting to tick up and a more robust overall economic picture, should be all that is needed for the third hike from the Fed since December 2015, bringing the target band for official rates to 0.75-to-1 per cent.

The Fed's decision will be delivered at 4:00am (AEDT) on Thursday morning.

The Bank of England and the Bank of Japan also meet on Thursday and are expected to stay put at their very loose monetary policies.

Europe, Korea and US policy uncertainty still concerns

In more fragile times, good economic news tended to create poor market sentiment aligned to fear of rising rates.

That theory appears to have run its course, but the world remains a very uncertain place for investors.

Wobbly European politics, Korean tensions and uncertainty about the Trump administration are new causes for concern.

The Dutch go to the polls on Wednesday in what is being seen as a proxy vote for the level of disgruntlement in Europe over the political elite.

A strong vote for the populist-right wing People's Freedom Party of Geert Wilders will be seen as a pointer for similar Eurosceptic movements in upcoming polls in France, Germany and Italy.

The Freedom Party looks to be running out of puff with its polling slipping down below 20 per cent.

At those levels would be unlikely to be able to form a government.

However, with up to five centrist parties likely to be needed to form a coalition government, uncertainty around the result could run for months rather than days.

President Donald Trump celebrated his 50th day in the White House on Friday, but there is still no firm economic blueprint on the table.

Bits have been delivered — the TPP has been scuttled and some environmental regulations dumped — but there is still no clarity on tax cuts and spending plans.

The tax bit might come out this week, but clearly it is far more complex than a 140-character tweet with the usual band of lobbyists, advisors and Republican officials all pushing competing plans and interests.

Another solid gain in Australian jobs expected

Job search Photo: While the unemployment rate holds steady at 5.7 per cent, opinions vary around the figures. (ABC News: Nic MacBean)

The jobs picture in Australia is less clear cut than the US, but by no means bad.

The consensus view for jobs data out on Thursday is for the fifth-straight month of employment growth, with around 16,000 expected to be jobs added in February and the unemployment rate holding steady at 5.7 per cent. However, opinions vary around those figures.

Citi's economics team forecast a smaller increase in jobs, and argued a lift in the number of people looking for work could kick unemployment up to 5.8 per cent.

NAB's tip is a stronger 25,000 new jobs and unemployment dipping down to 5.6 per cent, based on recent solid increases in its business conditions survey and a pick-up in job ads.

The February edition of the NAB's business survey is out on Tuesday and if it follows the recent trend, it should confirm a rebound from the very week third-quarter growth of last year.

Business conditions in January jumped to pre-GFC boom levels and confidence also jumped thanks to a more positive sentiment towards the global economic outlook.

China's economy likely to deliver good news

The big monthly data dump from China's National Bureau of Statistics (Tuesday) is expected to show the economy there has stabilised over recent months.

Trade figures have been strong, pointing to a pick-up in both internal and external demand, while factories are reporting an expansion in activity and higher prices for their goods.

The three key measures of economic activity — industrial production, retail spending and fixed asset investment — should show an economy starting to accelerate out last year's modest slowdown.

Australia
Monday 13/3/17
Tuesday 14/3/17Business confidence and conditionsFeb: NAB series, solid jump in confidence last month, conditions above trend
Wednesday 15/3/17Consumer confidenceMar: Westpac series, despite a large gain last month pessimism outweighs optimism
New vehicle salesFeb: Down about 1pc YoY
Thursday 16/3/17Labour forceFeb: Unemployment forecast to hold at 5.7pc
Friday 17/3/17

Overseas
Monday 13/3/17CH: Foreign direct investmentFeb: Fell last month but complicated by Lunar New Year holiday
Tuesday 14/3/17US: Fed meetsStart of two-day rates meeting
US: Producer pricesFeb: Factory gate prices rising slowly
CH: Monthly industrial and retail dataFeb: Fixed asset investment, industrial production and retail sales stabilising
EU: Industrial productionJan: Growth modest at best
Wednesday 15/3/17US: Fed rates decision25bp rise to 1pc expected
US: InflationFeb: Edging up to 2.5pc YoY
US: Retail salesFeb: Up around 5.5pc YoY
EU: Dutch electionA measure of populist sentiment in Europe
Thursday 16/3/17JP: BoJ decisionOfficial rates expected to be steady at -0.1pc
UK: BoE decisionOfficial rates expected to be steady at 0.25pc
US: Housing startsFeb: Rebound expected
EU: Trade balanceJan: Surplus expected to narrow
Friday 17/3/17US: Industrial productionFeb: Expected to be flat

AustraliaPlus


 

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