The US September jobs report dealt a significant blow to the notion of a 2015 Fed hike -- against which we consistently disagreed throughout the year as it achieved the gloomy feat of disappointing across the board.
The Details
The Headline rate (first back-to-back months of sub 200K in 18 months), downward revision in prior months (-59K), notable decline in average hourly earnings and the unchanged unemployment rate were offset by the decline in the participation rate to fresh 38-year lows.
What's especially sobering about the report is that just as the Fed had been increasingly shifting its attention toward slowing inflation metrics on the assumption that labor-market metrics will continue improving, this data hits us.
Whither Liftoff?
The door to Fed's lift-off has been shut beyond Q1 2016 as the extended weakness in the world's biggest buyer of commodities -- combined with the erosion of the “Gulf Nations' Put”, along with the decline in EM FX reserves -- is a defacto tightening of equity and bond markets.
China and EM have done the Fed an enormous favour by saving it from the potential of a monumentally embarrassing rate hike, which we warned about last month:
The rate of deterioration in the debt profile of energy and mining companies is far from that reached by sub-prime lenders in 2007-2009. But the situation is getting worse. A Fed hike would be a costly and embarrassing policy mistake.
