Originally published by Rivkin Securities
On Friday the number of US jobs added for the month of February exceeded expectations with the non-farm payrolls data showing 235,000 jobs were added compared with forecasts for 200,000. The unemployment rate dipped to 4.7% from 4.8% prior and average hourly earnings (YoY Feb) rose at +2.8% in line with expectations. Finally a measure of underemployment which includes those working part-time for economic reasons decreased from 9.4% to 9.2%.
There is a growing conversation about whether or not the FOMC is behind the curve when it comes to tightening rates. While this is only natural given rates were suppressed for such an extended period of time, at this stage there are no indications this of the Fed being behind the curve and therefore the path of hikes is expected to remain gradual.
The report now clears the way for the Fed to hike rates at the March 15th meeting this week and investors will now be focusing on the timing of the next two hikes. Looking ahead either the June or September meetings look the most likely for a second hike given they are both accompanied by updated economic projections and a press conference by Janet Yellen. That would then set up the December meeting for the third hike this year, should the underlying data for inflation and unemployment continue to evolve in line with expectations.
The market reaction to the report may seem counter intuitive, in that the US dollar dropped -0.59% along with treasury yields with both the two and ten-year yield decreasing -1.2 and -1.6 basis points respectively. A March 15th hike had already been factored in with the jobs report further confirming this, hence the pullback in the dollar. Also contributing to the US dollar weakness was a stronger euro which gained +0.89% as the market begins to price in a less accommodative ECB. US equity markets bounced with both the S&P 500 and Nasdaq 100 gaining +0.33% and +0.41% respectively.
Looking ahead it is a busy week for central banks, with monetary policy decisions by the Fed, BOE and BOJ. We’ll also see key data including UK unemployment, Euro-zone employment, US CPI, US advanced retail sales, Australian unemployment, Euro-zone CPI and US consumer confidence. On top of this data we’ll also see the Dutch elections on March 15th with the focus on Geert Wilders Euro-sceptic party. While the Party for Freedom or PVV is unlikely to gain a majority it will serve as a bellwether for both French and German elections this year.
Locally the S&P/ASX 200 gained +0.60% on Friday and this morning we can expect a fairly flat start to trade with ASX SPI200 futures up +3 points.