Analysts expect 310,000 jobs to be added with average earnings predicted to rise 2.7% year on year. Any outcome above forecasts is thought to make a December rate rise from the Federal Reserve more certain, as labour markets continue to tighten.
Speaking of the Federal reserve, Jerome Powell was announced yesterday as the new Federal Chair, taking over from Janet Yellen. Powell, who has been sitting on the Fed (Federal Reserve) Board since 2012, was regarded as the “status quo” candidate as he is unlikely to deviate from the Fed’s current monetary policy path. This was reflected by the muted reaction in markets to what should have been a key announcement, as the dollar index (a measure of the currency against a basket of peers) hardly reacted, falling just 0.1% on the news.
As of 12pm Friday London time, the US S&P 500 is just down 0.05%, the EuroStoxx 50 is up 0.85%, UK FTSE All Share is up 0.8%, whilst Emerging Markets and the Japanese Topix had a stronger week rising 1.54% and 1.30% respectively.
In the UK, the Bank of England finally raised interest rates for the first time in a decade, as many had expected. The committee voted seven to two in favour of raising rates and benchmark rates rose by 0.25% to 0.5%. It should be noted, however, that so far this is just a reversal of the rate cut made last summer after the Brexit vote. Furthermore, the MPC released a statement that it would need to make at least two further quarter of a percentage point rate rises over the next two years to control inflation. Despite this, the market initially interpreted the comments as dovish and Sterling fell 1.4% against the dollar to $1.306.
Elsewhere in Europe, several economic reports were released for the Eurozone region. Preliminary data showed that eurozone GDP grew 0.6% in the third quarter ahead of forecasts, down from 0.7% in the second quarter.
Unemployment for the region also fell to 8.9% for September, its first fall below 9% since the beginning of 2009. However, inflation readings measured by consumer prices, missed expectations, rising 1.4% year on year.
Japanese markets are closed on Friday for a holiday. Meanwhile, other Asian Pacific equities struggled for particular direction by the end of the week. The Hong Kong Hang Seng index increased marginally 0.3% for its last session, helped by China’s technology heavyweight Tencent, which rose 1.8% hitting records highs. Alibaba Group, the major Chinese e-commerce company also contributed as it reported positive quarterly results. The South Korean Kopsi index was also flat over the week.
Australian markets stood out as the S&P / ASX 200 hit a two and a half year high, buoyed by energy stocks and miners that benefitted from the gains in commodity prices. The index finished 0.5% higher over the week to 5,959. In other economic news, the Australian dollar dropped 0.4% on Friday to as low as $0.7682, after the Australian Bureau of Statistics revealed that retail sales had not shown any change month on month. The currency finished trading at $0.7729.
In the UK, alluding to the rate rise from the Bank of England, fixed income investors also interpreted the Monetary Policy Committee statement as dovish. In immediate response to the announcement, the yield (which moves inversely to the bond price) on benchmark 10 year UK government bonds fell 8.1 basis points.
Brent crude oil continued to perform throughout the week, as the commodity managed to hold at above $60 per barrel. The Brent crude price reached as high as $61.70 per barrel midweek, as OPEC (Organization of the Petroleum Exporting Countries) and Russian officials recently signalled support to extend their deal when they next meet on November 30th, reducing fears they could increase production and bring back supply again to the market..
Eight years into the current economic recovery, the global recovery has picked up as a stabilisation in commodity prices helped the emerging markets.
Although political risks in Europe have not gone away, some of the big hurdles have been crossed, with the French and German elections behind us. Central banks’ balance sheets are stretched beyond what would have been considered possible only a few years ago. Unemployment in the US has fallen to levels not seen in over 10 years, and even in Europe unemployment has fallen to its lowest level since the global financial crisis. And yet, despite all of this, inflation remains languishing at historically low levels, and central banks are struggling to raise interest rates.
This environment is why the current economic cycle can continue further, and stock markets continue to rise despite rich valuations. However, we have to be increasingly wary over the re-emergence of inflation, as historically many economic cycles have ended as central banks rush to keep inflation under control, and the market continues to price in a slower rate of rate increases than that flagged by the US Federal Reserve.
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