With the US employment market really picking up over the last year, there has been a lot of speculation on when the Fed may start to raise interest rates and normalise monetary policy. The consensus call for several months now among analysts, traders and several FOMC members has been for a mid-year lift-off to interest rates with the main focus on the June meeting, which also includes member projections and a press conference with Chair Yellen. Earlier this week, ADP payrolls from the last several months were revised upwards, substantially indicating an even more robust economy than previously thought and keeping the Fed on track toward a midyear lift-off for interest rates. Traders are now looking to Friday’s nonfarm payrolls report for confirmation of this strength. For some time there has been a sweet spot of 200K to 250K for markets, where a stronger result would suggest a more aggressive Fed and a weaker result would suggest a soft economy. Last month’s increase of 257K was above that, and I think a 20K upward revision to closer to 275K appears possible. The street is looking for 235K and the strong ADP payrolls have me thinking 240K looks possible. The main risk to these expectations is that the loss of high paying jobs in the oil patch could impact both jobs and hourly earnings (wage inflation). Last month the economy proved more than capable of making up the difference. This week’s Beige Book report also indicated that lower energy oil prices had had a positive impact on other occupations. For example, while some areas saw oil-related layoffs, others saw a shortage of truck drivers, with lower fuel costs boosting transport demand. The tug of war over jobs from the oil price crash may continue to play out over the next few months. Heading into Friday’s report, the Dow and S&P have been holding just under all-time highs, while USD has been climbing, indicating expectations for another strong report. Another print above 250K would solidify expectations of a June rate lift-off, while a number in the sweet spot would suggest a lift-off between June and September. At this point, it would likely take a result decidedly below 200K and downward revisions to previous months to knock the Fed off course. A strong report could boost USD even further while a weak report could knock it back. Similarly, a strong number could limit the ability for stocks to advance more in the short term, but a weak number could be bearish because it’s more likely the Fed would try to wait out a soft patch in the economy rather than undertake new stimulus. Keppel Corp - SGX Keppel Corp looks interesting today. The stock seems to have consolidated it’s ‘oil-related’ slide from September 2014. A ‘triangle pattern’ is begining to be emerge as the stock continues towards a ‘point of inflexion’ around this SG$8.7-8.8 level, with a possiblity to break out from either side. Several triggers for a breakout of the stock could be in the pipeline. On the positive side, the price of oil after having consolidated from its downtrend could see a further bounce from here. This could fuel positive sentiment back to Keppel’s story. Furthermore - though unlikely - milestone contracts for new orders could also be announced. On the downside, the negative spotlight on the corruption scandal of Sete Brazil and Petrobras could easily be reflected back here to Keppel once again. This story seems to have taken on a renewed momentum in Brazil, causing the recent sell down of the Brazilian Index. Contracts from Sete Brazil and Petrobras weigh as much as 40-50% on Keppel’s order books. Also, oil may continue with its slide downward. This would certainly threaten the likelihood of cancellations of orders for the group. Not forgetting any possibilities or new developments from their takeover of Keppel Land, this is a name worth including to your trading watch list now.
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