Rates look almost certain to rise in the US this week after the release of strong February data.
This included:
Non-farm payrolls jumped 235,000, well above the forecast of 190,000;
The unemployment rate fell again in February;
Average hourly earnings increased again; and
The annual growth rate rebounded to 2.8%.
We are monitoring US rates but don't think higher rates will spell disaster for US investments assets, as monetary policy is set to be tightened further against the backdrop of stronger US and global economies. So far, asset markets themselves seem unfazed. This is being driven by the realisation that global growth will likely be stronger than expected this year, which has helped boost equities since the beginning of the year. US CPI inflation numbers are also due out this week, and there is the possibility they will have strengthened to a 5 year high. This will add further fuel to the possibility of a rate hike.
Euro to keep dollar down
Despite the positive data, the US Dollar weakened last week. This followed comments by European Central Bank President, Mario Draghi, that the ECB no longer saw 'urgency' for further expansionary measures as the risk of deflation had been overcome. The retreat of the US Dollar reflected a 1.1% gain for the Euro. The ECB reiterated its commitment to buying assets this year and keeping interest rates at current or lower levels for an extended period. With growth in the Eurozone holding up well and headline inflation ahead of target, there is pressure for the ECB to provide forward guidance on interest rates. However, while the ECB believes that downside risks have diminished, it will apparently not taper its asset purchases or raise interest rates until core inflation, and particularly wage growth, are rising. As such, interest rates are unlikely to be increased in 2017.
Eye on Aussie Inflation
With inflation picking up globally, the Reserve Bank of Australia (RBA) will be watching the Australian market keenly as we tend to import inflation. Further, the RBA cannot use the terms of trade (which is strengthening) as an excuse to cut rates to weaken the Aussie Dollar and make Australia more competitive. This environment will prevent the RBA to reduce rates and our expectation is that the change will be a reate increase as early as next month!
Disclaimer
This information is current as at 15/03/17 This article has been prepared by Heart1Stop, a social media brand owned by Heart Mortgage Services and Heart Financial Advisers. The information contained in this article is an overview or summary only and it should not be considered a comprehensive statement on any matter nor relied upon as such. The views expressed here are not those of Heart1stop, Heart Mortgage Services, Heart Financial Advisers, shareholders, directors or staff and associated contractors and business associates. This article has been prepared without taking into account any person’s objectives, financial situation or needs. Because of this, you should, before acting on any information contained in this article, consider its appropriateness, having regard to your objectives, financial situation or needs. Any taxation information contained in this article is a general statement and should only be used as a guide. It does not constitute taxation advice and is based on current laws and their interpretation. Each individual’s situation may differ, and you should seek independent professional taxation advice on any taxation matters. While the information contained in this article may contain or be based on information obtained from sources believed to be reliable, it may not have been independently verified. Where information contained in this publication contains material provided directly by third parties it is given in good faith and has been derived from sources believed to be accurate at its issue date. It is not the intention of Heart1Stop or Heart Mortgage Services and Heart Financial Advisers that this publication be used as the primary source of readers’ information but as an adjunct to their own resources and training. To the maximum extent permitted by law: no guarantee, representation or warranty is given that any information or advice in this publication is complete, accurate, up to date or fit for any purpose; and no party of Heart1Stop or associated entities as mentioned is in any way liable to you (including for negligence) in respect of any reliance upon such information. This article may also contain links to websites operated by third parties ("Third Parties") who are not related to Heart1Stop. These links are provided for convenience only and do not represent any endorsement or approval by us.
