The week of 5th-9th Feb 2024- Payrolls spoils the party!

Last week there were 4 significant economic announcements

Wednesday’s Australian 4th quarter inflation figures fell to 4.1% (Y.o.Y), a drop, but still uncomfortably high. Wednesday’s Federal Reserve Interest rate announcement came as no surprise with the Federal Funds target rate remaining at 5.25% to 5.5%. What was a surprise was the subtle change in tune of the statement. The word “inflation” was mentioned 8 times. “The Committee is strongly committed to returning inflation to its 2 percent objective.” The dollar strengthened. Thursday was the turn of the Bank of England to leave its interest rate unaltered. 2 out of 9 of the monetary policy committee voted for a hike. 1 voted for a cut. 6 believe the current rate is appropriate. The decision fuelled a strengthening in the GBP. Perhaps Friday’s extraordinary Non-Farm Payrolls will set the tone of when the Fed will cut interest rates (if at all for) the next few months. Payrolls posted 353,000 vs expectations of 180k. December’s figure was revised upwards too. What was most worrisome was the spike in average hourly earnings which increased 0.6% (M.o.M) for January and 4.5% year on year! The dollar spiked immediately in a frenzied few minutes of trading after the announcement.

To this week and we have US ISM Services PMI, an interest rate announcement from the Reserve Bank of Australia, New Zealand employment figures, The Canadian balance of Trade and Canadian employment data which rank as the most important events of the week.

On Monday afternoon ISM services PMI for January will be released which is expected to read +52 vs the previous month’s 50.6. This follows on from last week’s ISM manufacturing PMI which exceeded expectations, printing 49.1 vs forecast of 47.

On Tuesday morning, the RBA will announce its interest rate decision. My hunch is that it will remain unchanged at 4.35%. The press conference should be interesting. Australian employment numbers were shocking earlier in the month. Inflation is still elevated. US payrolls has thrown a spanner in the works. In recent history the RBA lags the Fed. I don’t see any shocks on Tuesday.

On Tuesday evening, New Zealand employment figures will be released. Consensus estimates are for a rise in the NZ unemployment to 4.3% in Q4.

On Wednesday, Canada’s Balance of trade for December is expected to print Cad$ 1.1B (down from Cad$ 1.57B for November which in itself was a decrease from October’s Cad$ 3.2B). On Friday Canadian unemployment is expected to rise to 5.9%.

Last Friday’s Non-Farm Payrolls have definitely put a dampener on the potential for a Federal Reserve interest rate cut in March. With surging stock markets, retail sales, consumer confidence and strong employment it would defy logic if the Fed stoked markets with a cut. And if America ain’t sneezing, the World cannot catch cold; or in other words, if the Fed ain’t cutting then neither will other G7 Central Banks!

Good Luck and Good trading!

Ben Robson