08.03.13 Friday Morning

As the trading week wraps up it is clear that this has been another good week for the bulls with the phenomenal U.S. Non-Farm Payrolls figure being the icing on the cake.

With a forecast change of 162k, investors were blown away with the staggering figure of 236K, the biggest number since the beginning of March 2012, with the unemployment rate dropping 0.2% to 7.7%.

This week we saw the Dow Jones Industrial Average trade above its previous all-time high of 14,198, a level we have not seen since October 2007, nearly a year before Lehman Brothers collapsed and the world banking system fell to its knees.

A run of better-than-estimated economic data has overshadowed concern over federal spending cuts known as the Sequesters. The $85billion worth of spending cuts, or Sequesters, are expected to shave off around 0.5% of US GDP in 2013 if US lawmakers fail to reach an agreement to fight off the cuts before they bite.

With a backdrop of US sequesters, political turmoil in Italy and renewed euro zone debt contagion fears, stock markets so far this year have performed strikingly well. Much is owed to the continued central bank activism we have had for the past few years since the global financial turmoil of 2008.

The Fed's continued accommodative stance with a pledge to retain ultra-easing stimulus measures until the US economy is self-sustaining is the primary reason behind this market rally on Wall Street.

The US Sequesters, though not positive for economic growth in the long-term, are seen by some as a positive catalyst for stock markets as it would mean that the Fed now has little choice but to keep its pedal on stimulus measures for some time still.

In Europe, together with the advance on Wall Street, investors are comforted by signs that Spain is on track with its deficit reduction measures. The IMF stood behind Spain too, believing the country is making steps in the right direction – Spanish 10-year bond yields have responded by moving to levels we have not seen since January.

The European Central Bank kept interest rates on hold, in line with expectations but President Draghi struck an optimistic tone at the post-rate announcement press conference.

His tone was dovish, retaining inflation forecast and generally sounding less pessimistic about the euro zone’s prospects than some had feared. He did say the ECB discussed a rate-cut which hit the euro but the currency moved up on the generally dovish remarks while equities maintained their strength.

Going into next week, it will be interesting to see reaction to today's (Friday’s) US job figures. With such a phenomenal number, markets will start to worry that the Fed could temper the pace of QE this year.

Next Week’s Blue Chip Earnings:

• Tuesday - Preliminary 2012 Antofagasta PLC Earnings Release
• Wednesday - Preliminary 2012 Prudential PLC Earnings Release
• Thursday - Preliminary 2012 WM Morrison Supermarkets P L C Earnings Release

Next Week’s Important Economic Data:

• Tuesday – GB Manufacturing Production m/m
• Wednesday – USD Core Retail Sales m/m
• Wednesday – USD Retail Sales m/m
• Thursday – USD PPI m/m
• Thursday – USD Unemployment Claims
• Friday – USD Core CPI m/m
• Friday – USD Prelim UoM Consumer Sentiment