World Week Ahead US jobs, Fed watch

Monday 6th January 2014

Following Wall Street's lacklustre start to 2014, the latest US jobs data will take centre stage to gauge the odds that Federal Reserve policy makers might announce a further easing of their bond-buying program after their meeting at the end of this month.

This week will see the release of the latest ADP employment report, weekly jobless claims and, importantly, the monthly government jobs data. The state of the American labour market forms a key ingredient to the FOMC's take on the US economy's need for ongoing stimulus.

Last month the Fed announced its decision to start cutting its monthly pace of bond purchases to US$75 billion in January, from US$85 billion. The minutes of that meeting, which will be released on Wednesday, will also be scrutinised for potential clues on the monetary policy road ahead.

The Labor Department report on January 10 may show the economy added 195,000 jobs in December, according to a Bloomberg survey, while a Reuters survey predicted US employers to have added 197,000 jobs. The unemployment rate is expected to hold steady at 7 percent, the lowest level in five years.

Before then, speeches by several Fed officials will also be monitored closely.

On Tuesday, Boston Fed Bank President Eric Rosengren will talk on the economic outlook in Hartford, Connecticut, while San Francisco Fed Bank President John Williams will speak on the economy and monetary policy in Phoenix, Arizona.

On Thursday, Kansas City Fed Bank Esther George will discuss banking and the economy in Madison, Wisconsin, while Minneapolis Fed Bank President Narayana Kocherlakota is set to talk in Minneapolis, before St Louis Fed Bank President James Bullard will speak on the economy and monetary policy in Indianapolis on Friday.

"Everything comes down to Fed expectations versus reality," Larry Milstein, managing director in New York of government-debt trading at RW Pressprich & Co, told Bloomberg News.

The next two-day FOMC meeting starts on January 28. When Fed Chairman Ben Bernanke's term expires at the end of this month, Fed Vice Chair Janet Yellen is set to succeed him.

Policy makers of the European Central Bank and the Bank of England are scheduled to meet this week.

Other US economic data scheduled for release this week include reports on factory orders and the ISM non-manufacturing index, due Monday; international trade, due Tuesday; the ADP employment report on Wednesday; weekly jobless claims on Thursday; and wholesale trade on Friday.

The US Treasury is scheduled to sell US$64 billion of notes and bonds this week.

And the next quarterly earnings season will get underway too this week as Alcoa reports results after the markets close on Thursday. Analysts forecast earnings for S&P 500 companies increased by 5.2 percent in the fourth quarter, according to data compiled by Bloomberg.

"If you have earnings growth and the economy is better, then stocks can go up," John Fox, director of research at Fenimore Asset Management in Cobleskill, New York, told Reuters.

Last week-shortened by the New Year's holiday on January 1, the Dow Jones Industrial Average edged 0.05 percent lower, the Standard & Poor's 500 Index fell 0.5 percent, while the Nasdaq Composite Index shed 0.6 percent

In Europe, the Stoxx 600 Index edged almost 0.1 percent lower last week. The UK's FTSE 100 fell 0.3 percent, France's CAC 40 shed 0.7 percent, while Germany's DAX dropped 1.6 percent.

In the coming days, the latest reports on the economy here will arrive in the form of euro-zone PMI services as well as the region's Sentix investor confidence, and German CPI, on Monday; German unemployment, euro-zone CPI and PPI, due Tuesday; euro-zone unemployment, due Wednesday, and euro-zone confidence data, due Thursday.

BusinessDesk.co.nz

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