News releases from mining giants; Australia, was one of the highlights of last weeks market events. Trade Balance from the nation improved by 57% as the deficit fell to $436 million from a previous deficit of about $1 billion, thanks to a slight drop in imports and a marginal increase in exports. The Reserve Bank of Australia cut the cash rate for the first time in 18 months, putting the Interest rate charged on overnight loans between financial intermediaries at 2.25%, a record low. This prompted the Aussie to plunge about 1.9% against the USD after the release and is seen to possibly drive the AUD lower in months to come as the rate cut could give room to even further cuts in future months. U.S non-farm payroll report showed phenomenal increase in the private-sector jobs. Revisions showed employers boosted jobs in November by 423,000, the largest monthly gain since September 1997, and 329,000 in December, as well as 257,000 in January beating forecast of 236,000 jobs added this month. Equally important is the fact that average hourly earnings was on the rise to 2.2% in January, better than 1.7% recorded in December which shows that the improving job market is pushing wages, though at a marginal rate which could affect the Fed’s decision on whether to stay “patient” in raising rates.
The week kiced-off with China’s Trade Balance showing a record trade surplus in January as a result of a fall in imports attributed to declining commodity prices and weak domestic demand. This marks the largest drop in over five years as imports declined about 19.9% y/y leading to a trade surplus of $60 billion. This adds to worries of a declining Chinese economy as the surplus is only a reflection of declines in imports and exports as domestic demand ails and international demand falters too, adding to a weakness in manufacturing and weakness in the property markets. Sooner or later, the government will have to step up measures to support this economy. On Tuesday, the Consumer Price Index will be due for release. This will be closely watched as a signal of domestic inflation and is forecast for 1.1%, potentially the lowest level since 2009.
RBA Gov. Stevens spoke at the launch of the Bank of China (Sydney) as the official renminbi clearing Bank in Australia. This comes as no surprise as China is Autralia’s largest trade partner. Gov. Stevens commented thus: “Today’s events mark an important step in the further development of a local renminbi – or RMB – market. But more than that, they mark one more step in a lengthy and very important journey that has seen the flowering of trade relations between China and Australia, and which promises benefits from the maturing of financial ties.” On Tuesday, the National Australia Bank Business Confidence will be due, giving insight into how respondents rate the relative level of current business conditions. Employment Change data is due on Thursday, forecast for a steep drop by 4,700 jobs. In December, 37,400 jobs were added, surpassing forecast of a mere 5,300 as labor participation rate increased. This was reflected in unemployment rate as well with a fall to 6.1% from a previous 6.2%. Unemployment rate for the last month is expected to go back to 6.2%
Manufacturing Production m/m makes up about 80% of total Industrial Production and tends to dominate the market. It is forecast for a drop to 0.3%. The effect of this news release maybe overshadowed by the upcoming BOE Inflation Report on Thursday. Last week, the Central bank maintained interest rate at a record low of 0.5%. Governor Mark Carney’s speech is expected to give further insight into future expectations and economic outlook and is likely to touch on the issue of time frame for raising interest rates which is widely expected to be outside the first half of 2015.
On Wednesday, Eurogroup meetings will be held with a specific theme; “Greece”. We would expect information coming from this meeting to move the Euro based on the fact that Greek’s Financial minister, Yanis Varoufakis’ European tour was concluded in a malicious stance with his German counterpart, therefore word from the German representatives will be of particular interest. Other average impact news scheduled for release during the week include French Industrial Production m/m, French Prelim GDP q/q, German Prelim GDP q/q, French Prelim Non-Farm Payrolls q/q, Flash GDP q/q as well as Italian Prelim GDP q/q.
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Last week’s highlight was the better than expected job report. Fundamental forecast for this week, we have less dollar moving events. FOMC memebers, Powell and Lacker are expected to speak on Monday and Tuesday respectively. On Thursday, Core Retail Sales m/m is forecast to show a drop in the total value of sales, excluding automobiles by 0.4%. The Retail sales m/m on the other hand is expected to show a 0.3% drop as against the sharp 0.9% plunge in December figures, the lowest drop n 11 months attributed to seasonal adjustments following the holiday spending spree. Unemployment Claims have stayed positive in recent months, though quite volatile due to seasonal changes. Analysts forecast 279,000 for this week, similar to 278,000 recorded last week.