Weekly wrap: US job numbers and central bank decisions set the scene this week

The inconclusive results of the Italian parliamentary elections, where none of the political parties gained a majority, raised the risk of prolonged instability, rekindling eurozone fears. Adding to investors’ concerns over the week were the impending US sequester – $85bn of automatic spending cuts, which were due to kick in on Friday 1 March – with no signs of a compromise deal in sight, as well as poor manufacturing surveys in Europe and China.

Against this backdrop, the US Federal Reserve (Fed) chairman’s comments at his two day semi-annual testimony to Congress on the state of the economy acted as a balm for frayed nerves, as he reassured the markets of continued central bank support, defending the Fed’s bond-buying stimulus plans. US stocks were further buoyed by data showing strength in the housing sector, consumer sentiment and a surprise rise in manufacturing activity in February.

On this side of the pond, an unexpected contraction in UK manufacturing activity in February sent sterling down to two-and-a-half year lows against the US dollar, while a similar survey for the eurozone offered little hope that the region would soon emerge from recession. To cap it all, data released at the end of the week showed that China’s manufacturing growth slowed in February, raising concerns for the country’s recovery.

In latest news, during Monday’s trading in Asia, stocks have tumbled on the news that China is to take steps to curb property speculation. Events that will likely dominate sentiment over the rest of the week are major central bank meetings, US job numbers and further developments in Italy.

In the US, ADP employment for February is out on Wednesday, which should register a rise in private payrolls, but could show a lower number than in January. February’s non-farm payrolls data and unemployment report are out on Friday. Consensus expectations are for a modest rise in job gains with no change in the unemployment rate, although some analysts expect the latter to drop slightly from 7.9% to 7.8%.

The Bank of England (BoE), the European Central Bank (ECB) and the Bank of Japan (BoJ) are all due to announce their latest policy decisions on Thursday. While no change in policy is expected from the banks, the BoE’s decision on interest rates and quantitative easing (QE) will draw particular attention, after the recent loss of the UK’s AAA credit rating.

In Europe, gross domestic product (GDP) growth numbers for the euro area out on Wednesday are likely to confirm a 0.6% contraction in activity for Q4 2012 (quarter-on-quarter) resulting in a 0.9% contraction year-on-year for the region.