We can work it out: Dow on a high after jobs surprise, while central banks hold fire on interest rates
The continuing political stalemate in Italy failed to dampen investors’ spirits, as equity markets globally approached or broke above five-year highs. Stronger than expected US jobs data provided a key catalyst, propelling the Dow Jones to a new record level. The ADP revealed that private companies had added 198,000 employees in their latest jobs report (February), while initial claims for unemployment benefit fell for the second week running. But the best was saved for last when Friday’s US Employment Report delivered a 236,000 increase in non-farm jobs (February), significantly above analysts’ estimates, accompanied by the unemployment rate dropping to 7.7%, its lowest level since the end of 2008. The MSCI World Total Return Index advanced 2.0% (US$), while ‘core’ government bond prices in the UK, US and Germany all fell back.
Japan’s Nikkei index posted its biggest weekly gain since December 2011. While the Bank of Japan (BoJ) left its policy settings on hold, it appears likely that Haruhiko Kuroda, who has been nominated as the BoJ’s new governor, will start to implement more aggressive policy easing. ‘No change’ was also the news from the Bank of England (BoE) and European Central Bank, although both banks continue to see risks for their respective economies. Services purchasing managers’ indices (PMIs) showed weakness in France, Spain and Italy, in contrast to better US and UK readings, which showed expansion in the sector.
China and Hong Kong were the market laggards, impacted by news that the Chinese State Council was increasing downpayments and loan rates for buyers of second homes in certain fast-growing cities to deter property speculation. Meanwhile, China’s National People’s Congress reaffirmed the government wants to rebalance the economy by increasing public spending. Finally, strong Chinese export data for February provided a slight boost to global markets on Friday.
Happy shoppers or dollar thrifty? Retail sales, inflation, and confidence data should provide clues
Data Stateside could continue to dominate this week, as focus switches from the jobs market to the consumer. Monthly retail sales data for February will be released on Wednesday, while Thursday will see the producer price index released, culminating in the announcement of the consumer price index and University of Michigan/Thomson Reuters consumer sentiment survey (March) on Friday. While the 2% increase in payroll tax that came into effect in the New Year could see Americans cutting back on their spending, the positivity surrounding jobs creation might feed through to sentiment measures. Other reports include the Empire State manufacturing survey and February’s industrial production reading for February (both on Friday).
Tuesday will be a busy day for UK data: the Royal Institute of Chartered Surveyors will release its housing survey for February, hopefully showing some recovery from January’s snow-affected readings. January’s manufacturing output and industrial production data is expected to show continued but modest improvements. The UK trade position in goods and services (January) will also be unveiled. As the 20 March Budget draws nearer, investors might start to speculate about fiscal policy, and whether the government might modify the BoE’s policy mandate.
The European Union Summit begins on Thursday, where euro members’ reform progress is due to be scrutinised. In Asia, Chinese monetary supply data (February) should give further insight into lending trends, while January’s industrial production data will be eyed in Japan.