April In Review

US Nonfarm Payrolls came in at 192k in March, below the consensus of 200k and lower than February’s

payrolls (+197k); unemployment rate stayed at 6.7%, compared to consensus rate which

was at 6.6%. While the data came in below consensus, it actually came within the range that suggests the U.S. labor market continues on the mend.

Uneasy Win. Based on the quick counts from several sources, the winner of the legislative election was PDI-P, followed by Golkar and Gerindra. The victory for PDI-P however, came in below the initial expectation below 20%. This has forced the party to forge coalitions with several other parties. Nasional Demokrat has been the only one officially declared its coalition with PDI-P. Other parties have continued to lobby one another, but it is likely that everyone is waiting for the official count scheduled for May 9th 2014. For the time being, the market seems to have been taken hostage by the political uncertainties regarding who will join who.

Yellen’s Second Take. After her speech took the market by surprise by saying that the Fed may rise its benchmark interest rate about six months after the tapering process ends, the Fed Chair Janet Yellen “rephrased” what lies ahead of the FOMC’s policy. Specifically, she said that the market should focus on the gap between the Fed’s goals and the actual figures of unemployment and inflation rates. Unemployment rate is now at 6.7%, higher than the Fed’s criteria of full employment of 5.2% to 5.6%. Inflation rate on the other hand, remains well below 2%, the target set by the Fed. So, somewhat the Fed has scrapped the 6.5% unemployment rate that qualifies for rising the interest rate with 5.2% to 5.6%. This means the path towards the monetary tightening is still a long way to take, giving some time for the economy to enjoy the current low-interest rate environment.

Despite Yellen’s rephrase, we are still see the tapering off of stimulus to end this year and depending on how the economic data in the first half 2015, there’s still the odds of the first rate hike by the FOMC in 2H15.

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