Here's your complete preview this week's big economic events

Red car upsided down backwardREUTERS/Toby MelvilleWorkers move bollards near an upside down car art installation in a car park on the South Bank in London.

“Full employment!”

That’s the exclamation BNP Paribas economists made after the release of February’s better-than-expected jobs report.

US companies added 295,000 nonfarm payrolls during the month, driven by a 288,000 surge in private payrolls. This helped the unemployment rate tumble to 5.5% — the lowest level since May 2008 — from 5.7% the month prior.

“The current unemployment rate (5.5%) has now breached the upper bound of the FOMC’s latest central tendency for the long-term unemployment rate (or non-accelerating inflation rate of unemployment) of 5.2-5.5%,” BNP Paribas economists said. “This is a significant move that will put pressure on the Committee to lay the groundwork for higher rates soon.”

Most economists currently expect the Fed to start tightening monetary policy in June via interest rate hikes. But not every economist agrees.

Here’s your Monday Scouting Report:

Top Stories

  • June-ish. Nine of 16 banks surveyed by Reuters expect the Fed to begin hiking rates in June. However, while acknowledging the significant improvements in the economy, there are plenty of economists who believe the Fed will wait a little while longer.

    “With the final employment report in hand before the upcoming FOMC meeting, we think the Committee will modify its forward guidance on March 18,” Goldman Sachs’ Jan Hatzius said. “In our view, the most likely scenario is that the Committee replaces the reference to being “patient” in hiking the funds rate with new language that affords the possibility — without suggesting an overwhelming likelihood — of a hike as early as June. Our forecast remains for the first hike in the fed funds rate to occur in September.”

  • “Lift-off.” Even the New York Times editorial board cautions the Fed from hiking rates too soon.

    For Nomura’s Richard Koo, it’s very important that once the Fed begins hiking rates it stays the course. From Koo: “Once the Fed begins its mechanical tightening process, stopping before the goal is reached could upset the markets. Given the importance of getting the timing right, the FOMC needs to be absolutely sure that tightening is the right thing to do… On this point, three of the members on the rate-setting committee have already argued that the Fed should tighten, while Chair Yellen and the rest of the members believe the start of this long 375bp journey is similar to a rocket launch in that all conditions need to be favourable… Interestingly, these people are referring to the first rate hike as “lift-off,” which is the term used to describe the moment the rocket leaves its launching pad. This is an indication of how careful the Fed will have to be when pushing the button on a rate increase.”

Economic Calendar

  • Job Openings and Labour Turnover Survey (Tues): Economists expect the January JOLTS report to reveal 5.039 million US job openings. From Credit Suisse: “Job openings rose in December to 5.0M, which drove the vacancies-to-unemployed workers’ ratio up to 0.58 — its highest level since November 2007. January’s data could see some correction due to the uptick in January unemployment.”
  • Monthly Budget Statement (Wed): Economists estimate the US had a budget deficit of $US187 billion in February. From Nomura: “Fiscal year to date, the government has run a deficit of $US194.2bn, a 6.2% increase from the comparable period last year. We expect the federal government expenditures to be close to neutral growth in 2015 after contributing negatively to growth for the past three years.”
  • Retail Sales (Thurs): Economists estimate retail sales climbed by 0.4% in February. Excluding autos and gas, core sales are estimated to have increased by 0.3%. From Bank of America Merrill Lynch: “Gasoline prices increased in the month, which pushes up overall spend. But even controlling for the swing in gasoline prices, we think the underlying trend in spending will be slightly better. We are still somewhat cautious because the harsh winter weather could be holding back spending in parts of the country. If not for the weather, we would be much more positive on retail sales given the savings from lower gasoline prices over the past six months and robust job growth. Looking forward to the spring, we expect a notable improvement in spending.”
  • Initial Jobless Claims (Thurs): Economists estimate the weekly jobless claims fell to 305,000 from 320,000 a week ago.¬† From Deutsche Bank: “… they are expected to only partially offset their recent weather-related run-up as winter storm Thor wreaked havoc on a broad swath of the country over the past week. Claims will need to move back below 300k in order for us to get another large employment report in March.”
  • Producer Price Index (Thurs): Economists estimate producer prices climbed by 0.3% month-over-month or 0.0% year-over-year. Excluding food and energy, core PPI is estimated to have climbed by 0.1% and 1.6%, respectively. Here’s Morgan Stanley: “Wholesale gasoline prices rebounded about 20% between the February and January PPI survey periods after falling 23% in January. With some offset from weak natural gas prices, we look for overall PPI energy to gain 6% after falling 10% last month. Substantial weakness in services prices in January, most notable in healthcare, led to a 0.3% plunge in core (ex food, energy, and trade services) PPI in January. We look for a partial rebound in services along with soft core goods prices to lead to a slight rebound in the core in February. Our monthly estimates would boost the headline year/year pace to 0.4% from 0.0% and leave the core unchanged at 0.9%.”
  • U. of Michigan Sentiment (Fri): This index of sentiment is estimated ot have climbed to 95.7 in March from 95.4 in February. From Barclays: ”¬†Retail gasoline prices have now stabilised after a few months of consecutive declines, while stock market prices have remained buoyant. Both are consistent with favourable conditions for consumers but not with a further rise in the index from its already high level.”

Market Commentary

On March 2, the Nasdaq topped 5,000 for the first time since 2000. At first glance, veteran market watchers can’t help but be jarred by the memory of the tech bubble.

Most experts argue firmly that it’s different this time. Importantly, earnings are at much higher level today than the were in 2,000.

But some are a bit more sceptical. From Deutsche Bank: “There was much excitement about the milestone – with bulls and journalists seemingly unanimous that this time is different because today’s 30 times price/earnings ratio [a measure of valuation] is miles from the bonkers 150 times seen at the end of the millennium. But current or forward earnings multiples are meaningless. If you smooth Nasdaq’s volatile profits, and adjust for inflation, valuations look more worrying. Based on ten year average earnings the current PE is 50 times, versus 65 at the peak. More important, with the exception of QE-fuelled 2009, investors have been wise since 1999 to sell the Nasdaq whenever this so-called Shiller PE [another measure of valuation] reaches 50 times – with a subsequent average three year return of minus 20 per cent.”

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