Yellen Makes A Hawkish Exit | Manufacturing PMI Data Under Lights

Posted by Naeem Aslam | 01/02/2018 08:30

  • US March rate hike on table
  • ADP sets a strong tone for US NFP 
  • Euro could cross 1.25 

They are calling it hawkish exit for Janet Yellen (current Fed president) but we are saying it job well done. Janet Yellen, the Federal Reserve chairwomen, made pretty much clear in her last meeting that the economy warrants more rate hikes. Therefore, the first decision by the upcoming Fed chairperson would be increase the interest rate. Trump administration’s tax incentive plan has strengthened the inflation equation and this allows the Fed to move the interest rate to a more normal level.

The ADP number released yesterday has set a strong tone for the upcoming US NFP. The private sector is thriving once again by employing higher number of job candidates and this sets the tone that the US NFP should show a positive outcome. Investors would be looking closely towards the average hourly earning number; this will set the tone for traders. The FOMC upgraded the inflation forecast last night and if the US NFP data support the Fed's view, we could see the dollar index strengthening further.

Investors around the globe have taken the Fed’s message as a sign of confidence. The massive sell-off in the equity markets was the opportunity if the current trend continues from here. The S&P 500 finished the month on a higher note, marking the 15th month in a row.

The Euro hass lost some steam today mainly because of the stronger dollar, however, we do think that it is likely that it will touch the level of 1.25 soon. Manufacturing PMI data from the four biggest economies of the Eurozone would confirm the economic health of these countries. Spain, Italy, France and Germany are expected to show a strong picture of their manufacturing sectors and the forecasts are 55.7, 57.7, 58.1 and 61.2 respectively.

The European banks could come under pressure when the EU releases its stress test results. To date, these would be the toughest test which European banks will face as this includes the Brexit scenario. Some of the strong assumptions include the eurozone's GDP dropping 8.3% short of the ECB's recent forecast, housing sector experiencing massive drop of 27.7% and unemployment surging by 3.3%.
 

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