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Week in Review: Fed Fears Ebb With Mixed US Jobs Data

For the week ended 5 February 2016

  • US nonfarm payrolls rise 151,000, unemployment dips to 4.9%
  • Fed's Fischer: Volatility could lead to tighter financial conditions
  • ECB's Draghi: Aggressively fight ultra-low inflation
  • Eurozone unemployment falls for 15th straight month
  • EU proposes reform plan to avoid "Brexit"

Global equity prices remained choppy late in the week as markets began to price in a more moderate tightening cycle from the US Federal Reserve. Investors no longer expect a further rate hike in March, and at the moment Fed futures are not pricing in any further increases for the balance of 2016. The US dollar slumped this week as the market priced out the Fed and oil prices stabilized.

Market volatility, as measured by the Chicago Board Options Exchange Volatility Index (VIX) held nearly steady, at 22 versus 21.5 a week ago. The yield on the US 10-year Treasury note fell to 1.87% from 1.95% last week. West Texas Intermediate crude dipped to $31.25 per barrel from $34.10 a week ago while global Brent dipped marginally to $34.10 from $34.44.


US employment report a mixed bag
Nonfarm payrolls rose by 151,000 in January, which was a less than expected. Revisions to prior months also subtracted 30,000 jobs from last month's total of 292,000. On the plus side, the unemployment rate dipped to 4.9% from 5.0% and average hourly earnings advanced 0.5% in January, up from a flat reading in December.

Fed's Fischer worried global selloff could sap US economic strength
Fed vice-chair Stanley Fischer sounded a dovish note early this week, saying global market volatility could lead to a persistent tightening of financial conditions, which in turn could signal a slowing in the global economy that could affect growth and inflation in the United States. The market's expectations of barely any interest rate hikes this year could turn out to be right, he said.

ECB's Draghi sets stage for greater action
ECB president Mario Draghi continues to make the case for further monetary easing when the Governing Council meets to set rates in March. The risks of acting too late outweigh the risks of acting too early, Draghi said — the clearest sign yet that policy could be loosened further next month.

Eurozone unemployment continues mild downtrend
Unemployment in the eurozone continued to edge lower, falling 0.1% in January, to 10.4%. That is the 15th consecutive monthly decline in the unemployment rate.

EU proposes UK reform plan to avoid "Brexit"
The European Union this week put forward a set of proposals designed to help keep the United Kingdom in the EU. The plan was seen in the British press as too little, too late. A referendum on the matter has not yet been scheduled but is widely expected to take place in June.

China's manufacturing sector remains pressured
China's official purchasing managers' index fell for a sixth straight month to a three year low.  The January index came in at 49.4, down from 49.7 in December.

Obama administration proposes $10 per barrel oil tax
In his FY 2017 budget, US president Obama has proposed a $10-per-barrel tax on oil companies. The tax would be used to fund infrastructure and transportation projects. The measure is unlikely to gain much traction in the Republican-led Congress.


ChemChina buys Swiss seed maker
ChemChina this week announced the largest foreign acquisition ever by a Chinese firm. It agreed to acquire Swiss agrichemical firm Syngenta in a deal with a total value of $47.9 billion, including debt.

Earnings season rolls on
Fifty-nine percent of S&P 500 companies have reported Q4 2015 earnings as of 4 February, according to Lipper. The blended earnings growth estimate is -4.2%. Stripping out the beleaguered energy sector, it is 2%. Seventy-one percent of the companies that have reported have exceeded analyst expectations, 9% have been in line with expectations and 20% have fallen short. The Q4 blended revenue growth estimate is -3.6%. Excluding the energy sector, the revenue growth estimate is 0.9%.


  • China releases data on foreign exchange reserves on Monday, 8 February
  • The European Commission releases GDP forecasts on Wednesday, 10 February
  • Fed chair Yellen testifies before the US House Financial Services Committee on Wednesday, 10 February
  • Eurogroup finance ministers meets on Thursday, 11 February
  • The EU releases GDP figures for Q4 2015 on Friday, 12 February
  • The US releases January retail sales figures on Friday, 12 February

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Sources: MFS research; The Wall Street Journal; The Wall Street Journal Online; Bloomberg News; Financial Times;;;

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