The US economy takes it in her stride powering ahead. NFP numbers on Friday surprised everyone (expected 240k average) with a print of +257k. Unemployment might have edged up 0.10% to 5.70% but it was the monthly job creations (NFP) that we were all looking at for direction. Suffice to say the EURUSD fell like a stone from circa 1.1440 to 1.1320, GBPUSD 1.5340 to 1.5220. This is a USD move, pure and simple. Additionally average hourly earnings rose 2.20% y/y in January which is something the FED like to see…job creation and wage growth. The revisions were also strong with payrolls rising 329k in December and 423k in November taking the past 3 month average to 336k which is the strongest growth since November 1997. All in all the strength of the US economy continues to shone through and as we have suggested in previous blogs, we expect the FED to start raising rates as early as July 2015. Having said that if the USD does continue to rally towards PARITY this could force the FED’s hand forcing them to hold back a couple months and see how the market deals with strength of the USD. The FED have a magic wand right now and they are using it as and when they need.
The effects of the strong US QE over the years is now clear for everyone to see. It is no wonder that BOE Governor Mark Carney hailed the ECB’s latest push to revive the EU economy and said global financial markets are now more resilient against additional shocks. “There are many reasons why the ECB’s actions are important, one of them is it shows the ECB has the full tool kit to support the underlying economy as necessary…the ECB is taking bold action,” Mr. Carney said at a meeting of the G20 Finance Ministers and Central Bank Governors in Istanbul.
The ECB have played their trump card, what about the BOE and the UK economy? Well the BOE is observing a turn in wage growth in the U.K. which is required for a sustainable economic recovery. The U.K. economy is returning to relatively robust growth while Europe struggles against deflationary pressure because the BOE moved quickly to recapitalize the banking system after the 2008 crisis and stuck to its inflation-targeting remit. The UK’s flexible economy also helped job creation as labour participation increased. Mr Carney said “Reform recommendations after the 2008 crisis by the Basel Committee on Banking Supervision and the FSB have already started to make a difference”. Mr. Carney warned of “reform fatigue” and said countries need to strike coalitions to enact the “toughest macro reforms”, adding that the G-20 should hold its members to account on pushing through measures that will help integrate and strengthen global financial stability. Mr Carney was obviously having a “dig” at Greece hoping that they will toe the line with austerity rather than try and fight it. While GREXIT would and could create a disaster in the financial that we have never seen, it is our sincerest hope that it never comes to this.
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