US payrolls surge, bolster Fed rate hike prospects

WASHINGTON - US employment gains surged in February, the clearest sign yet of labor market strength that could further ease fears the economy was heading into recession and allow the Federal Reserve to gradually raise interest rates this year.

Nonfarm payrolls increased by 242,000 jobs last month, the Labor Department said on Friday. The unemployment rate held at an eight-year low of 4.9 percent even as more people piled into the labor market.

"This is the best news the Fed could have expected going into the meeting. With jobs bouncing back, you can be sure that rate hikes are just around the corner," said Chris Rupkey, chief economist at MUFG Union Bank in New York.

The economy added 30,000 more jobs in December and January than previously reported. The only blemish in the report was a three-cent drop in average hourly earnings, but that was mostly because of a calendar quirk.

The average length of the workweek also fell last month.

Economists had forecast employment increasing by 190,000 last month and the jobless rate holding steady.

The employment report added to data such as consumer and business spending in suggesting the economy had regained momentum after growth slowed to a 1.0 percent annual rate in the fourth quarter. Growth estimates for the first quarter are around a 2.5 percent rate.

Fears of a recession in the wake of poor economic reports in December and slowing growth in China sparked a global stock market rout at the start of the year, causing financial market conditions to tighten.

Financial markets have priced out bets of a rate rise at the Fed's March 15-16 policy meeting and see a roughly 50 percent chance of a hike at the September and November meetings, according to CME FedWatch.

Economists, however, believe the strong jobs market and improved growth outlook, together with signs that inflation is creeping up, could prompt the Fed to lift borrowing costs in June.

The Fed raised its key overnight interest rate in December for the first time in nearly a decade.

Prices of U.S. Treasuries fell after the data, while U.S. stock index futures rose. The U.S. dollar gained against the euro and hit session highs against the yen and Swiss franc.

Slower wage growth
Fed Chair Janet Yellen has said the economy needs to create just under 100,000 jobs a month to keep up with growth in the working-age population.

The labor force participation rate, or the share of working-age Americans who are employed or at least looking for a job, increased two-tenths of a percentage point to 62.9 percent, the highest level in just over a year.

Adding to the report's strength, a broad measure of joblessness that includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment fell two-tenths of a percentage point to 9.7 percent.

The employment-to-population ratio also increased to 59.8 percent last month, the highest since April 2009, from 59.6 percent in January.

While wage growth weakened in February, it was largely payback for January's jump, which was driven by a calendar quirk. Growth in wages is seen accelerating as the labor market settles into full employment.

The drop in average hourly earnings lowered the year-on-year gain in earnings to 2.2 percent from 2.5 percent in January. The average workweek fell to 34.4 hours from 34.6 hours in January.

In February, job gains were almost broad-based, though manufacturing and mining employment fell. The services sector created 245,000 jobs after adding 153,000 jobs in January. Mining lost a further 18,000 jobs after shedding 9,000 positions in January.

Mining payrolls have declined by 171,000 jobs since peaking in September 2014, with three-fourths of the losses in support activities. More losses are likely after oilfield services provider Halliburton Co. said last month it would cut a further 5,000 jobs because of a prolonged slump in oil prices.

Manufacturing employment lost 16,000 jobs, reversing some of January's surprise increase. Private education jobs rebounded after plunging in January. Construction payrolls increased 19,000 and government added 12,000 jobs.

source: interaksyon.com

China fears, global growth doubts grip markets

MADRID - Markets are watching for China's next move as signs of a slowdown in the world's second-largest economy stack up, raising expectations it will act to stoke growth.

A looming snap election in Greece and a closely watched conference hosted by the Federal Reserve in the United States are also likely to keep investors on their toes in the coming week, in particular as they look for hints on when the U.S. will raise interest rates.

Fears that Chinese growth is weakening, dragging down the global economy with it, are hammering commodities and stocks.

Alarm bells rang out across world markets on Monday as a 9 percent dive in Chinese shares and a sharp drop in the dollar and major commodities panicked investors.

On Friday, a survey showed Chinese manufacturing slowed the most since the global financial crisis in 2009 - adding to other worrying clues about the country's health, including its falling exports.

China devalued the yuan earlier in August by pushing its official guidance rate down 2 percent. The central bank has said there was no reason for the currency to fall further, but investors are also bracing for further interest rate cuts.

"It will be all eyes on the Chinese authorities for any further policy support steps, alongside the People's Bank of China yuan fixings and trading swings," analysts at Investec Economics said in a note to clients.

China is also widely expected to relax reserve requirements ratios for its banks again in the coming months, a measure intended to spur lending by reducing the cash they need to hold. It is trying to keep its economy on course to grow 7 percent in 2015 - its slowest pace in a quarter of a century.

"We continue to expect a total of 100 basis points of reserve requirement ratio cuts by end-2015, with the first cut likely to take place within the next two weeks," economists at Standard Chartered said.

The cash reserves ratio has already been cut three times this year.

Eyes on Fed, Greece

By the end of the coming week, attention may shift away to the Rocky Mountains, where policymakers are due to gather from Aug. 27-29 for the Fed's conference of central bankers, finance ministers, academics and financial market participants in Jackson Hole.

Fed chair Janet Yellen is not expected to attend, raising the prospect that other Fed officials may be more tight-lipped about the likelihood of the first rate increase in almost a decade, some analysts said.

The prospect of an increase as soon as September is receding, however.

Last week the Fed released minutes of its July meeting, giving no clear signals as to the timing of such a move - which would affect markets across the world and could cause more pain for emerging market assets, already being hit by China's woes.

Though they were more confident about U.S. growth prospects, the minutes showed, Fed policymakers are concerned about weakness in the global economy - fears likely to have been heightened by Monday's market rout in which the dollar also fell sharply.

Further clues on both matters should be gleaned from data releases in the coming week, including second-quarter U.S. gross domestic product figures due on Thursday.

Quarter-on-quarter growth in the period is expected to be revised upwards to 3.2 percent from 2.3 percent, according to a Reuters poll.

In the euro zone, investors will be looking at an German economic sentiment survey due on Tuesday for a better idea of the scope of the bloc's recovery.

Preliminary August consumer price readings for Germany and Spain on Friday will provide further insight into how effective the European Central Bank's bond-buying efforts have been at warding off deflation.

But the spotlight will mainly fall once again on Greece, where Prime Minister Alexis Tsipras has resigned. That opens the way for early elections after he secured much-needed funds in the country's third international bailout program.

The current Greek government aims to strengthen its position in the election after accepting a rescue deal it once opposed. But that creates more uncertainty for markets already on edge over whether Greece will deliver on promised reforms and get its economy and banks back on track.

source: interaksyon.com

Oil, stocks go their separate ways

NEW YORK - Investors have wrung their hands over the last several weeks over the effect of lower oil prices on the broader S&P 500, but the relationship between the two is actually starting to break down.

Crude prices had dropped more than 10 percent in the trading week ended Dec. 12. That was largely responsible for a 3.5 percent drop in the S&P 500, as investors fled stocks over concerns about energy-sector bonds, corporate earnings, and expectations for world economic demand.

That seemed to change Thursday. The S&P 500 surged while oil fell, a potential change in sentiment among investors looking to focus on sectors that may benefit from an accelerating U.S. economy.

"The proof is that oil turned down and the market said, 'Oh, that was yesterday's news, today we're moving ahead,'" said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.

Bank of America Merrill Lynch credit strategist Hans Mikkelsen credited the decoupling partly to Fed Chair Janet Yellen's Wednesday news conference.

"She explained how declining oil prices are expected to be a net positive for the U.S. economy. Furthermore, she went out of her way to dismiss any downward pressure on inflation as transitory."

Investors may have already priced in the effect of cheaper oil on energy-sector earnings and are now starting to weigh the positives for other sectors.

In its 2015 global outlook, fund manager Pimco said the fall in energy costs, because it is largely supply-driven, should ultimately help growth in major economies, including the United States, Japan, and the euro zone.

Fourth-quarter energy-sector earnings are expected to decline 19.2 percent from a year ago; on October 1, growth of 6.6 percent was expected.

"You will see some pain in the short term because of fourth quarter earnings," said James Liu, global market strategist at JPMorgan Funds in Chicago. "So the broad S&P 500 will take a hit based on that, but over the next several quarters it is clearly going to be a good thing."

As recently as Tuesday, the 10-day correlation between the S&P 500 and Brent crude stood at 0.97, meaning each moved in almost perfect sync with the other. The correlation has been breaking down and last stood at 0.42, with Brent stumbling 3.1 percent, while the S&P 500 surged 2.4 percent, on Thursday.

According to data from S&P, energy has fallen to a market share representation of 8.31 percent, from 9.7 percent at the end of the third quarter, as names such as Denbury Resources, Nabors Industries and Halliburton have each tumbled more than 35 percent.

With investors hoping oil prices have at least stabilized as Brent hovers around the $60 mark, selling pressure could resume on equities if the downward march for oil begins again, weighing on the broader S&P index and tightening the correlation.

source: interaksyon.com

Wall Street Week Ahead: Short week, jobs data may bring back swings

NEW YORK - Wall Street may kick off the second half of the year with an uptick in volatility, thanks to the June jobs report and plenty of other market-moving data in a short trading week.

Financial markets will be closed on Friday for Independence Day. So Thursday will bring a blitz of numbers: the nonfarm payroll figures for June, the May trade deficit and the June index on the services sector from the Institute for Supply Management. On Wednesday, U.S. Federal Reserve Chair Janet Yellen is scheduled to speak on financial stability at an International Monetary Fund conference in Washington.

The elevated volatility would shake some traders out of a stupor. They have been limited in their betting by this market, which has been resilient but boring: The S&P 500 has not had a weekly swing of more than 2 percent since mid-April.

"It has been a very frustrating few months in the market for both long-term and short-term traders. It is very tough to outperform in this environment," said Sam Ginzburg, head of trading at First New York Securities in New York.

The S&P 500 has scored 22 record closing highs for the first half of 2014, feeding concerns about a technical pullback. Yet the CBOE Volatility Index, Wall Street's fear gauge, has hovered near multi-year lows, reflecting a market that seemed to grind higher no matter what was thrown at it.

"Markets will probably trade sideways or lower until the VIX gets to a higher level, where it can support some kind of (a meaningful) advance," said Donald Selkin, chief market strategist at National Securities in New York, which has about $3 billion in assets under management.

The VIX is trading around 11, or about half of its long-term average of about 20. While no one would want to relive the financial crisis when the VIX jumped to 89.53 on Oct. 24, 2008, a modest amount of volatility is welcome on Wall Street.

A higher VIX creates valuation imbalances that drive stock picks and boost trading volume, which has collapsed from more than 8 billion shares a day in 2007 to an average of about 5 billion now.

For long-term investors, though, Wall Street is wrapping up a good first half of the year. The S&P 500 has climbed 6.1 percent this year, following a jump of 30 percent in 2013.

A recent Reuters poll showed market participants expect the benchmark index to hit 2,000 for the first time before the year ends, which is a gain of about 8.2 percent from 2013.

If the market closed the year at current levels, it would mark the best three-year run for U.S. stocks since the 1997-1999 period.

source: interaksyon.com

Asian shares hit four-month high on China data, Yellen

TOKYO - Asian shares hit four-month high on Tuesday after China's official PMI survey showed manufacturing managed to continue expanding in March, and dovish comments from Federal Reserve Chair Janet Yellen.

MSCI's broadest index of Asia-Pacific shares outside Japan rose by up to 0.3 percent to reach its highest level since early December.

China's official Purchasing Managers' Index increased to 50.3 in March from February's 50.2, in line with economists' forecasts. Above 50 indicates expansion, below 50 signifies contraction.

While the PMI figure alone is unlikely to dispel concerns of a slowdown in China, investor sentiment has improved on China in recent weeks as they expect Beijing will adopt a stimulus plan to achieve its growth target.

Shares were also supported after Fed chair Yellen reinforced the need for "extraordinary" commitment to support the U.S. economy, seemingly tempering expectations of a sooner-than-expected start to the rate-hike cycle.

Yellen gave a strong defense of the Fed's easy-money policies in her first public speech since becoming Fed chair two months ago, saying there remains "considerable" slack in the economy and job market.

"It seems like she expressed her own dovish ideas. There's nothing really new and the outlook of the Fed's policy has not changed that much but the markets like her remarks," Makoto Noji, senior strategist at SMBC Nikko Securities.

Emerging markets, which suffered a sharp selloff earlier this year on concerns about a turn in Fed policy, slowdown in China and political instability in some countries, appeared to have regained some stability.

MSCI emerging market index hit a three-month high on Monday, having outperformed S&P 500 since late March. Among them, Brazilian shares hit four-month high.

Rising risk appetite undermined low-return assets that had attracted safety bids last month at the height of the Ukrainian crisis.

Gold hit a seven-week low of $1,282.04 per ounce on Monday, despite Yellen's dovish comments while the yen also slipped to a three-week low against the dollar of 103.44 yen and a nine-month low against the risk-sensitive Australian dollar at 95.75.

The euro bounced back against the U.S. dollar to fetch $1.3773 even as softer-than-forecast inflation numbers put more pressure on the European Central Bank to act against the threat of deflation.

Euro zone inflation dropped to 0.5 percent in March, its lowest level since November 2009, having been in the ECB's "danger zone" of below 1 percent for six consecutive months.

However, not many market players expect the ECB to act at its policy meeting on Thursday, partly because of comments from ECB council member and Bundesbank President Jens Weidmann on Saturday.

Weidmann said that the euro zone is not in a deflationary cycle and that the ECB should not over-react to a slowdown in inflation caused largely by cyclical factors which should prove temporary.

Crude futures were off three-week highs following news Russia was withdrawing some troops on the Ukrainian border. U.S. crude futures stood at $101.41, off Friday's high of $102.24.

source: interaksyon.com

Asian shares on defensive, hoping for China stimulus plan

TOKYO - Asian shares were in a defensive mode on Tuesday after Wall Street fell overnight, though still-vague hopes of a new stimulus plan in China could improve investor sentiment.

U.S. Treasuries prices fell, with the benchmark two-year yield hitting a six-month high as investors grew nervous that the Federal Reserve may raise interest rates sooner than expected. Bond yields rise when prices fall.

MSCI's broadest index of Asia-Pacific shares outside Japan dipped 0.1 percent as Australian shares fell 0.5 percent, while Japan's Nikkei dropped 0.5 percent.

On Wall Street, the Nasdaq Composite Index led the losses with a fall of 1.2 percent to five-week low, as investors took some money off recent top performers such as biotech shares. The S&P500 Index fell 0.5 percent to 1,857.44.

Concerns over Ukraine and soft U.S. manufacturing were cited as possible catalyst, though market players noted the selling could also reflect unwinding of positions ahead of the quarter-end.

The survey on U.S. manufacturing by financial data firm Markit also showed U.S. manufacturing activity slowed in March.

U.S. President Barack Obama and major industrialized allies warned Russia on Monday it faces additional economic sanctions if President Vladimir Putin takes further action to destabilize Ukraine following the seizure of Crimea.

"In short, there's nowhere to put money at this point. Investors are generally upbeat on the U.S. but they want to see more evidence that the weakness in some of the recent data is due to a bad weather," said Tohru Yamamoto, chief fixed income strategist at Daiwa Securities.

Yet short-term U.S. bond prices are under pressure after Federal Reserve Chair Janet Yellen said the Fed could raise rates six months after its current bond-buying program ends - potentially as soon as spring 2015.

Even as the U.S. 30-year yield fell to 3.56 percent, near this year's low of 3.525 percent, short-dated debt yields moved in the opposite direction, flattening the yield curve sharply.

The U.S. two-year yield shot to six-month high of 0.4655 percent also due in part to caution over the two-year debt sale on Tuesday, the first leg of U.S. government issuance this week totaling $96 billion.

Rising U.S. short-term rates were undermining the attraction of precious metals, with gold was fetching $1,308.91 per ounce, close to Monday's near one-month low of $1,307.54.

Silver tumbled to a six-week low of $19.84 and last stood at $19.89.

In contrast, emerging markets were generally resilient after weak Chinese manufacturing data on Monday sparked expectations the Chinese government could unveil stimulus measures following Monday's weak survey of manufacturing.

source: interaksyon.com