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Week Ahead: Fed minutes & US jobs data

Thin holiday volumes and light trading will be on the menu of next week in the first trading week of 2017. All markets, except European markets, will be closed on Monday 2nd January.


The FOMC meeting minutes and US jobs data will be the major focus.


The FOMC increased the Federal funds rates by 25 basis points at its December meeting, after Donald Trump’s victory in the US presidential election triggered a sizeable rally in US stock markets and the US dollar. The US yield curve shifted higher during the last two months of 2016. Donald Trump promised to spend up to $500 billion in infrastructure and take drastic measures, including protectionist measures, to bring jobs back to America.


With looser government and fiscal policies in view, the Fed Reserve will be forced to take a step back and tighten monetary policy in order to avoid any overheating in the US economy. Yet, Fed hawks are already in charge of the market. Therefore, we do not expect a hawkish surprise at next week’s FOMC minutes and could expect US bonds and stocks, as well as the US dollar, to find fresh direction on the back of new economic data.


On Wednesday, the ADP employment data will be in traders’ focus. The consensus is 170’000, far softer than the 216K figure printed a month earlier.


Due on Friday, the nonfarm payrolls are expected to come in at 175K, versus 178K printed last month. The unemployment rate could have retreated to 4.7% from 4.6%, yet the average earnings may have grown by 0.3% on month, pushing the year-on-year average up to 2.8% in December from 2.5% earlier.


All in all, market expectations for the latest US jobs data are mixed. Any disappointment regarding the data release could encourage a further unwinding in the US dollar, US stocks and pull the US yield curve lower.


In Europe, the manufacturing and services PMIs during the week will be the main highlight. On Thursday, the ECB will release its latest meeting minutes. The ECB is keeping its loose monetary stance, as euro bears remain in charge of the market moving into the new year.