Friday preview: Nonfarm payrolls key to Fed rate hike

Friday's nonfarm payroll figures were being described as the "most eagerly anticipated data release of the year" on Thursday, as the US Federal Reserve sniffed through economic data to find a route to the first interest rate hike in more than nine years.

Annual inflation in the US remained well short of the 2% goal set by the central bank, though employment targets were already met with November's unemployment rate of 5% the lowest since early 2008.

"The (Federal Reserve) has arguably missed a number of opportunities to hike rates, going back to the first quarter of this year", mused SpreadCo's David Morrison.

"Granted, it was never going to be an easy call. After all, the Fed tightened monetary policy when it ended its bond buying programme (QE3) in October 2014.

"The rally in the US dollar which preceded this move and has continued almost uninterrupted ever since has also crimped some aspects of the US economy. It has certainly hit US exporters and multinationals who have become less competitive thanks to the stronger dollar", he added.

It's widely understood the Fed needs to signal to the markets that it has confidence in both the US and global economies - something that could prove difficult with rates set at such unprecedented lows for such a prolonged period.

And while the S&P500 remains in a relatively healthy state despite China's summer crash, stockmarket strength is not proof of a healthy economy. "If investors can't earn a decent rate of interest on their cash, eventually they hold their nost and buy equities", Morrison said.

Morrison also points to a number of recent data releases that are cause for concern. "Retail sales, factory orders, manufacturing and non-manufacturing PMIs, industrial production, capacity utilisation, personal spending and personal income have all come in below expectations or have actually been in decline.

Nonetheless, it is tomorrow's nonfarm payrolls which are the crucial figure. October's number exploded beyond all expectations with a change of 271,000, leading to much speculation that the Fed had its green light for a rates rise.

"The consensus expectation is for (November) payrolls to come in around 200,000. Anything from 180,000 upwards will keep the (16 December) rate hike on the table", Morrison said of tomorrow's announcement.

"But watch out for a bad number: if it comes in below 160,000 then all bets are off and the dollar should continue its ECB-triggered decline."

Friday 04 December

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INTERNATIONAL ECONOMIC ANNOUNCEMENTS

Balance of Trade (US) (13:30)

Factory Orders (GER) (11:00)

PMI Construction (GER) (08:30)

PMI Retail (EU) (09:10)

PMI Retail (GER) (09:10)