US jobs report gains slow
This weekend provided me with a lot of opportunities to go over my thoughts on certain issues. Mostly this was rugby related and how strange it is that the England management team still don’t know the best XV, but moments of economic thought did flitter between the shouting and my trying to throw the TV out of the window.
Friday’s US payrolls announcement was a bit of a dog with very few bright spots to be found in the latest readout of the jobs market. Only 142,000 jobs were added in September missing the expectation of 201,000 and sending the dollar weaker as a result. Wage increases were pretty stagnant as well and that made sure that the probability of a 25bps rate hike in December fell from around 42% to 34% this morning.
Is it bad news though?
The contrarian view of the poor number is that as the labor market reaches full employment that it becomes more difficult to create jobs and therefore a slowing rate of improvement should not just be expected but encouraged. That may be being too generous to the US cheerleaders but a poor number does not end the hopes of policy normalization by the end of the year.
That said, Fed funds futures are now fully pricing the first rate hike in March 2016 and the odds of any hike by the end of 2016 are now below 90%.
To be honest, the dollar did not get hit all that hard in the aftermath. EM and commodity currencies did not run too much higher with some that are very close to the US economy – Mexico for example – losing ground still. A soft US economy is a plague o’er everyone’s house.
Stimulus to come soon
Central bank meetings this week will once again be closely watched for hints around additional stimulus. Tuesday’s Reserve Bank of Australia and Wednesday’s Bank of Japan meetings will be the most interesting although we expect both to hold policy this month. In Australia the Governor has recently said that he is “pretty content” with the current policy and data from the Australian economy has been relatively solid. Obviously further pressures are likely from the Chinese slowdown in the coming months and any communication from the Bank is likely to explain that.
Data has not been solid in Japan in recent months and the poor growth and deteriorating inflation outlook is not doing anything to help the Bank of Japan’s thoughts that policy should remain as is. Wednesday’s meeting may be too early for a policy change but analysts and strategists have come rushing in to forecast another pump of stimulus since the recent falls in corporate inflation expectations.
Likewise, this week’s Bank of England meeting is very much a placeholder before November’s inflation report data extravaganza. Within the accompanying minutes we should be able to gauge whether this Monetary Policy Committee remains happy pushing back on markets moving the first rate hike back into 2017 or whether, like 15 men at Twickenham on Saturday, they just need to go back to the drawing board.
The Day Ahead
Today’s all about services sectors with Italy’s number due at 08.45, France at 08.50, Germany at 08.55 and the Eurozone wide measure at 09.00 with the UK number due at 09.30. The US ISM report that will likely be the most closely watched given the weakness on Friday is due at 3pm.