Strong jobs numbers in the US and improving European fundamentals helped reinforce market sentiment last week. US non-farm payrolls jumped by 235,000 in February, exceeding well above expectations, while wage growth marched ahead, cementing expectations for a rate rise. This was followed through by Fed chair Janet Yellen stating that a March rate increase would probably be appropriate given the upbeat economic data in recent weeks. Beneath the headline numbers the data showed other measures of improvement in the labour market including the employment-to-population ratio which rose to 60 per cent for the first time since 2009.
UK Chancellor Philip Hammond’s first Budget appeared in short measure. Containing only half the measures of George Osborne’s previous Spring Budget. The Office of Budget Responsibility (OBR) upgraded its growth forecast for 2017 from 1.4 to 2 per cent. But the economy is now expected to grow more slowly from 2018-20, particularly as the consumer is likely to come under from pressure of higher cost inflation and continuing austerity through significant public spending costs.
Brent crude slipped to its lowest level since last November, as news that inventories of US crude stocks have surged for a ninth successive month, leading to concerns of a supply glut from the revitalised US shale oil market.
The ECB agreed to keep interest rates at a record low, but Draghi said the bank no longer had a sense of urgency to take further action on monetary stimulus. The central bank indicated that the key to a consistent recovery in inflation would be centred on employment and wage growth. Draghi sounded slightly more hawkish than expected and that the ECB is expected to reveal a tapering plan in September, if the Eurozone’s political picture is stable and the inflation is on a solid path toward the bank’s 2 per cent mandate target.
The ECB shift came as Eurozone inflation rose above its target of just under 2 per cent for the first time in four years. Markets are now pricing in a 68 per cent chance that the ECB will raise interest rates by August 2018, up from 31 per cent last week.
The surge of populism in Europe faces its first test at the ballet box this year with Dutch elections this week. Attention will also focus upon the US central bank where there is an 82 per cent chance the Federal Reserve will raise interest rates. Policymakers will have an assortment of last-minute data to consider, including core consumer price inflation. The Bank of England will announce their policy decision on Thursday, with no major changes expected. Finally, on Friday, Eurozone policymakers will get final figures on core CPI, and confirmation of whether the recent uptrend is intact.
Finally, bitcoin surged to an all-time high last week, to $1,327 a coin. Friday’s gains come ahead of the highly anticipated US Securities and Exchange Commission ruling on whether or not it will approve at least one of the three proposed bitcoin-focused exchange-traded funds by today.
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