Global shares are trading lower on Monday, following the downward trend that U.S. equities saw on Friday after the release of the January non-farm payroll report that showed 200,000 jobs created for the month, although steady average hourly earnings which increased by 9 cents after an 11-cent gain in December has raised fresh concerns about wage inflation and the U.S. Federal Reserve being behind the curve dealing with the emerging economic trend and may need to add one more rate hike in 2018.
Over the past year, average hourly earnings have increased by 75 cents, or 2.9 percent.
On Thursday the Bureau of Labor and Statistics reported that Unit labor costs in the nonfarm business sector increased 2.0 percent in the fourth quarter of 2017, largely from a 1.8 percent increase in hourly compensation, boosting the prospects for rising inflation and a future interest rate hike from the U.S. Federal Reserve.
As a result of the last 2 economic reports which point to higher prospects for wage inflation in the near-term, the yield on the 10 yr. Treasury continues to climb higher and is now over 2.8 percent, the highest level since January 2014.
Currently, the 10 yr. Treasury is trading at 2.83 percent.
Earlier today, the yield spiked to as high as 2.88 percent before moving lower.
The U.S. 10 Yr. Treasury is linked to other U.S. treasury yields that derive borrowing costs.
The U.S. Federal Reserve is currently projecting 3 more interest rate hikes in 2018, according to their December policy meeting when economic projections were last updated.
The market is currently pricing in a rate hike during the Fed’s next March policy meeting on March 21st.
Based on CME’s Fed Watcher tool, the probability of a .25 basis pt. rate increase with the federal funds currently stands at 77.5 percent.
The Federal Reserve’s preferred inflation gauge, PCE, shows that in December inflation rose to 1.7 percent.
Core PCE which excludes food and energy prices, was 1.5 percent. The Fed’s inflation target is 2 percent.
U.S. stock futures are pointing to a lower open on Monday which follows Friday’s day of selling in the market with the Dow plunging -665 points (-2.54 percent), the S&P 500 declining -59.85 (-2.12 percent) and the NASDAQ losing -144.92 (-1.96 percent).
Jerome Powell will take over control as Fed Chair at the U.S. Federal Reserve.
The Week Ahead- U.S. Economic Calendar
This week is lighter with the amount of economic data due compared to last week but corporate earnings will continue.
Later today, PMI Services Index and ISM non-mfg index are due.
On Tuesday, International trade results and JOLTS job openings are reported.
On Wednesday MBA mortgage applications, Crude-Petroleum Oil Status, and Consumer credit come into focus.
On Thursday weekly initial jobless claims, Fed Balance sheet, and the Natural Gas Report are reported.
On Friday Wholesale trade is due.
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