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Week Ahead: RBA speaks, US NFPs released & OPEC clash
US Nonfarm Payrolls are reported this week, showing if the US job market is gaining momentum or struggling to leave the doldrums. Elsewhere, a clash of the titans is gearing up in OPEC, and the RBA is set to make its latest rate statement, with no major change expected.
Reserve Bank of Australia makes rate statement
Australia, like New Zealand, had one of the best Covid responses out there. Economically, while by no means perfect, down under looks stronger than other nations reeling in Covid’s wake.
What’s on the agenda at the Reserve Bank of Australia’s (RBA) next rate announcement? Yields are rising globally, so is the RBA prepping a rate hike? Possibly, but while the Aussie economy recovered faster than others, hikes still seem a long way away. It’ll be a good idea to watch its next moves carefully.
At its January statement, the RBA kept its three-year bond and cash rate targets at 0.1%. It also reaffirmed its commitment to not raise actual inflation until it is in the 2-3% target range.
Major banks do not see a wild change in RBA policy in March. ING, Westpac, TDS and ANZ all predict no changes, with Australia likely to stay on its current economic course.
The RBA has also pledge to increase its bond-buying programme up to A$100 billion ($76.4 billion) from mid-April to help support jobs and boost inflation. But the Conservative government has also said it is doing away with its JobKeeper payments, fortnightly payments worth A$1,000 (US$775), as the economy is performing above expectation. That has caused a little consternation amongst furloughed Aussies, like those in the aviation industry, but could be a sign that the Australian economy is healthier than many of its contemporaries.
US nonfarm payrolls released
Observers will be looking very carefully at this Friday’s US Nonfarm Payroll data as it will give some indicators about the apparent strength or weakness of the US labour market.
January saw 49,000 jobs added to the US economy after December’s loss of 227,000. Growth sure, but way below the +100,000 expected.
The wider January Job Report highlights the difficult position US labour is in right now.
Leisure and hospitality continues to take body blows, with 61,000 sector workers losing their jobs in January. The sector has shed 4 million jobs since February 2019, showing the massive damage Covid has done. But if people can’t go out and enjoy themselves, it’s only going to continue. It’s a sad story, but one that will only end once the US returns to normality. Retail payrolls dropped by 37,800 after gaining 134,900 in December.
But some areas of the job market are improving. Notably, professional and business services added nearly 100,000 jobs after adding back 156,000 in December. And wholesale trade payrolls rose by more than 14,000 after a rise of 15,500 in December. Private payrolls too have shot up, according to ADP’s monthly jobs report, rising 174,000 in January.
January also saw a slight fall in the US unemployment rate, from 6.7% to 6.3%.
So, mixed emotions ahead of next week’s NFP report. While jobs have been added to the economy, the volume hasn’t been enough to really inspire massive confidence. The promise of future stimulus remains, but so too does the Covid menace. Get that under control, and a better job market is likely to follow (if you’re reading President Biden!).
OPEC meeting – tension on the way?
A house divided against itself cannot stand, as Abraham Lincoln once said. Could the same be happening for OPEC?
It looks like its biggest swingers are ready to clash once more. In the blue corner sits Saudi Arabia, top OPEC dog and world’s largest oil producer. In the red, we find Russia, pushing once more to taper oil cuts and start pumping more out.
Saudi Arabia has always been the more cautious of the top OPEC players. It recently, voluntarily, cut a further million bpd out of its production in order to protect prices, on top of its OPEC commitments.
7m barrels per day remains out of global supplies thanks to OPEC cuts. Its partially this that has helped oil rally recently, with WTI and Brent trading above $62 and $65 respectively.
But Russia is keen to bring more oil to markets. Oil is key to Russia’s GDP, accounting for something like 40% of annual government revenues, so it’s little wonder to see it pushing hard to increase production levels.
Global demand, however, remains tight. Will there has been some pick up with Covid cases and hospitalisations dropping in the US, for example, and the UK creating a roadmap to get out of lockdown on the strength of its vaccine programme, lockdown measures remain right around the world.
OPEC and allies’ March meeting will be interesting. Traders and oil observers will only be too aware of last year’s March antics, where Russia and Saudi clashes led to a suspension of OPEC for a month.
Major economic data
|Mon 01 Mar||01.00am||CNH||Manufacturing PMI|
|9.00am||EUR||Final Manufacturing PMI|
|9.30am||GBP||Final Manufacturing PMI|
|3.00pm||USD||ISM Manufacturing PMI|
|Tue 02 Mar||3.30am||AUD||Cash Rate|
|3.30am||AUD||RBA Rate Statement|
|Wed 03 Mar||12.30am||AUD||GDP q/q|
|1.15pm||USD||ADP Non-Farm Employment Change|
|3.00pm||USD||ISM Services PMI|
|3.30pm||USD||US Crude Oil Inventories|
|Thu 04 Mar||All Day||All||OPEC-JMMC Meeting|
|3.30pm||USD||US Natural Gas Inventories|
|Fri 05 Mar||1.30pm||USD||Average Hourly Earnings m/m|
|1.30pm||USD||Nonfarm Employment Change|
Key earnings data
|Mon 1 Feb||Zoom||Q4 2021 Earnings|
|Novavax||Q4 2021 Earnings|
|Tue 2 Feb||Target||Q4 2020 Earnings|
|Hewlett Packard||Q1 2021 Earnings|
|Wed 3 Feb||Prudential||Q4 2020 Earnings|
|Vivendi||Q4 2020 Earnings|
|Gazprom Neft||Q4 2020 Earnings|
|Marvell Technology||Q4 2021 Earnings|
|Thu 4 Feb||Broadcom||Q1 2021 Earnings|
|Sberbank||Q4 2020 Earnings|
|Fri 5 Feb||London Stock Exchange||Q4 2020 Earnings|
Morning Note: Aussie rallies on election win, equities slow
It was a tentative start to the trading week as markets digest the last few day’s ructions, ongoing news flow around US-China trade and mounting concerns about what is going on between the US and Iran.
The main European bourses have opened in the red although the FTSE 100 put up something of a fight to just about hold in the green. Can probably thank the weaker pound for this. Italian stocks are being hammered this morning.
US S&P 500 e-mini futures are green now having seen the broad market turn south on Friday. Stocks fell in the last couple of hours of trading last week on reports US-China trade talks were on hold. The market remains at the mercy of commentary and news flashes around these talks and it is wise to try and put some ear muffs on at times.
Australian banking stocks were the main winners as the win for the Liberal-National coalition removed the risk of certain regulatory moves.
Forex – Aussie wins
AUDUSD – ScoMo’s miracle victory has lifted the Australian dollar a touch, but bulls shouldn’t get too excited yet. AUDUSD firmed up on the first session of trading since the result of the election became known. Having fallen close to decade lows on the 0.68 handle, the pair has firmed on the 0.6920 level. Resistance seen at 0.69440, the 23% retracement of the down move from the April highs. Whilst the election may deliver some short-term relief for Aussie bulls, it’s the RBA that really matters. The market is betting on a rate cut this summer and seems likely, the question is whether this is the first in a cycle of cuts or is one-and-done. Nevertheless, having taken a look at decade lows, bulls will be hopeful that we have seen a reversal in the long-term down trend.
Elsewhere in FX, sterling remains under the cost. GBPUSD is struggling below 1.28 and is showing few signs of being able to mount much of a rally. The ongoing political uncertainty and the open war in the Tory party will act as drags on risk sentiment. GBPUSD was last at 1.2730 and with support seen at 1.2710, the Jan 10/11 lows.
And coming up this week we have a potentially volatile period for GBP given the European Parliament elections take place on Thursday through to Sunday. We should also be on guard for any EUR spasms if there is a surge in populist parties threatening to shake things up in Brussels. We’ve heard all this before, but nevertheless markets remain highly sensitive to news flashes – only last week the euro was moving on a series of comments made by Italy’s ruling populist parties.
We have some can kicking but it rather looks like OPEC is leaning to an extension and could adjust the volumes. Compliance was at 160% in April, which gives ample scope to raise output or reduce the production curb commitments. Brent remains bid above $73 on this as well as the mounting tensions between the US and Iran