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Wednesday preview: US hike 'a done deal', UK jobs market on the turn

Market Buzz

Wednesday preview: US hike 'a done deal', UK jobs market on the turn

Tue, 14 March 2017
Article viewed 222 times
Wednesday preview: US hike 'a done deal', UK jobs market on the turn

(ShareCast News) - On Wednesday, the US Federal Reserve will raise interest rates for the second time in four months, which is seen as such a certainty that some attention could still be reserved for the general election in the Netherlands, UK unemployment numbers and several other data points.
The US also will have retail sales data and a reading of the consumer price index thrown into the mix, while the suspension of the US debt limit also expires.

As a snow storm hit the west coast of America early on Tuesday, the US Federal Reserve said it still planned to hold its Federal Open Markets Committee meeting that despite the widely held expectations of a 25 basis point rise in the interest rate, is still surely likely to generate a blizzard of activity on the markets.

The 25bps rate hike will take the target range for the federal funds rate to 0.75-1.00% from 0.50-0.75%.

As a hike is considered to be a done deal, Rabobank currency strategist Jane Foley said the forward guidance and 'dot plot' from the committee is likely to be the most insightful part of the event, but even this might not move the dollar a huge deal.

"Specially, the market will be looking for signs that the Fed is, or is not, positioning itself for another move in June," she wrote.

"With a March Fed rate hike already priced in, scope for a knee-jerk move higher by the USD tomorrow seem unlikely. By many measures the USD is overvalued and this suggests that US Treasury Secretary Mnuchin may have some ammunition with which to call for a softer USD at the G20 Finance Ministers meeting in Germany at the end of the week."

Headline CPI is forecast to be unchanged in February, with the price index for gasoline falling by nearly 3%, while core CPI is expected to moderate to 0.2% month-on-month from the previous 0.3% reading.

US retail sales growth excluding automobiles is expected to slow to 0.2%, down from the 0.8% last time.

With the expiry of the debt limit, Danske Bank said markets may enter a period with renewed fiscal uncertainty in the US.

"Estimates suggest the Treasury will run out of money in the autumn. We do not expect a solution before tomorrow and we could see infighting for some months. We do not expect a major impact on the US growth outlook in the short run from higher fiscal uncertainty but risks increase the longer it takes to reach a deal."

The next Fed hike could be postponed if no deal is reached in coming months, Danske suggested. "The US Treasury's cash buffer at the Fed has declined but is set to be rebuilt when a solution is found leading to a tightening of USD liquidity."

UK and Europe

Over in Europe, the Dutch election will see polls close at 2100 local time and we should know the results a few hours later.

Despite this, the latest polls suggest that a potential coalition excluding the far-right Freedom Party would still fall slightly short of the 75 seats needed for a majority.

"Forming a coalition could take a long time - it took 127 days in 2010," noted HSBC. "Therefore, although the results should be known a few hours after the polls have closed at 9pm, it could be a long time before we know the composition of the government."

The UK's labour market data, which the Office for National Statistics is scheduled to deliver at 0930 GMT, still deserves some attention, despite the busy schedules elsewhere.

Last month's readings pointed to continued tightness in the jobs market, with unemployment remaining at its long-term low of 4.8% but wage growth slowing.

The ILO unemployment number for January is not expected to move, while average earnings growth is forecast to slow further, to 2.4% including bonuses from the 2.6% a month ago.

The ONS has said it will drop the experimental claimant count data.

HSBC thinks the headline unemployment rate could edge down again to 4.7%, which would be the lowest figure since September 2005.

Economist Howard Archer at IHS Markit said he expect the labour data to show relatively modest improvement before it starts to come under increasing pressure over the coming months from slowing economic activity and increasing business caution, which is seen causing unemployment to start to edge by mid-year.

"We expect pay growth will be muted as companies will increasingly look to clamp down on pay over the coming months to try and limit their total costs. Muted pay awards in tandem with markedly rising inflation is expected to increasingly squeeze consumer purchasing power. Indeed, the squeeze on consumer purchasing power has already deepened appreciably."

Wednesday 15 March

Labour market report (09:30)

Business Inventories (US) (14:00)
Consumer Price Index (US) (12:30)
Crude Oil Inventories (US) (14:30)
MBA Mortgage Applications (US) (11:00)
Retail Sales (US) (12:30)

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