Financial Markets’ “Need to Know”

Financial Markets’ “Need to Know”

It’s NFPs (Non-Farm Payrolls) week again and they are accompanied by an Australian interest rate decision and plenty of European macro data releases.

What was up…

Tuesday, 1 March we had the Reserve Bank of Australia (RBA) interest rate decision. Currently at 2%, Aussie rates are under pressure from regional easing in China and Japan.

Why traders cared?

Interest rates are a Key driver of Forex prices and a cut would weaken the Aussie dollar.

AUD/USD Support 0.7024: Resistance 0.7275

Wednesday, 2 March we had Eurozone PPI for January released. The Producer Price Index (PPI) is a measure of factory gate inflation. The Y-Y figure has been declining since Autumn 2013.

Why traders cared?

Factory gate inflation sheds light on corporate pricing power and is a Key input in any ECB decisions about interest rates and QE.

EURUSD Support 1.4180: Resistance 1.4442

What is up…

Friday, 4 March we have the US NFPs (Non-Farm Payrolls) for February are released.

This monthly update on employment saw job creation decline in January to 151-k from December’s 292-K. Forecast to be at 190-k in Feb.

Why should traders care?

Employment reports can influence the Fed and US interest rate paths. They are seen as barometer for US economic growth.

Watch US benchmark 10-yr T-Note

Support 1.0810: Resistance 1.1033

Notes: Unit labor costs in the non-farm business sector increased 3.3% in Q-4 per the revised data Vs a preliminary 4.5% increase.  The revision reflected a 1.1% increase in hourly compensation and the 2.2% decrease in productivity.  Unit labor costs have increased 2.1% over the last 4 Quarters.

Initial claims data for the week ending 27 February showed a slight rise in claims to 278,000 (consensus 270,000), up 6,000 from the prior week’s un-revised level.

There were no special factors influencing the latest reading, which kept initial claims pinned in the same 250,000 – 300,000 range they have been in since July 2014.

The 4-week moving average for initial claims decreased 1,750 to 270,250.

Continuing claims for the week ending 20 February increased 3,000 to 2.257-M, which was basically in-line with the consensus estimate.  That reading pushed the 4-week moving average lower to 2.257-M.

There was not much response in the futures market to the productivity and claims data.

After the run this market has had in recent weeks, that is not completely surprising.

I suspect there is a sense out there that the market is due for some consolidation activity following a near 10.0% move off the 11 February intra-day low and knowing the influential Employment Situation report awaits Friday

So, the focus will be on the US Employment Situation Report for February, which will be released before the open Friday.

That will be the case for good reason since this report has some out-sized influence in driving economic views and the market’s expectations for monetary policy.

The Employment Situation Report for February, 8:30a EST

Why it is important

  • The Employment Situation Report provides a comprehensive look at the state of the US labor market
  • The employment report helps drive economists’ forecasts for GDP primarily by way of the aggregate earnings data that feeds into consumer spending expectations
  • The employment report carries a political charge as employment and earnings trends help shape the policy narrative, as well as critiques of the Federal’s approach to managing monetary policy
  • The policy making implications contained in this report give it market moving cachet both here and overseas
  • A strong report might ratchet up speculation the Fed will raise the fed funds rate at its 15-16 March FOMC meeting, something the markets’ are not expecting

Everything is in play in the wake of this report because of how it will influence the markets’ thinking about the Fed’s rate hike path, not to mention economic growth prospects.

Notes:

February NFPs (nonfarm payrolls) at 242,000 consensus expected190,000.The prior month’s reading was revised up to 172,000 from 151,000.

Nonfarm private payrolls added 230,000 against the 180,000 expected by the consensus. The unemployment rate held at 4.9%, what consensus expected.

Average hourly earnings decreased 0.1% consensus expected an uptick of 0.2%. The average workweek was reported at 34.4 while the consensus expected a reading of 34.6.

The January trade balance showed a deficit of $45.70-B consensus expected the deficit at $44.00-B

Index ETFs

  • SPDR S&P 500 ETF (SPY)
  • PowerShares QQQ Trust (QQQ)
  • iShares Russell 2000 (IWM)

On the DJIA (NYSEArca:DIA)

DJIA finished Thursday at 16943.90, +0.26% is in moving close to the Key resistance area of 17000-200 and the price action here will decide if the index can extend the rally towards 17900-18000 or not.

The Big Q:  Will the markets’ response to the report be Bullish, Bearish, or Neutral?

We Wait, We Watch…

Friday early, these companies are scheduled to report earnings: SPLS, IKGH, BIG, TAX

Stay tuned…

Paul Ebeling

Westbrook Radio

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