Below trend growth to continue
Anyone looking for redeeming features in Friday’s soft US payrolls report was reduced to noting that the weakness in average earnings (flat on the month and unchanged at 2.2% y/y) may have been down to the fact that the Sep 15 mid-month pay day was excluded from the calculation
My thanks to my colleague Ray Attrill for my pillaging of his Weekend Update summary of Friday night’s payrolls, and it was one out of the box for sure. Anyone looking for redeeming features in Friday’s soft US payrolls report was reduced to noting that the weakness in average earnings (flat on the month and unchanged at 2.2% y/y) may have been down to the fact that the Sep 15 mid-month pay day was excluded from the calculation, and that the broader ‘underemployment’ measure fell again, to 10.0% from 10.3%.
An even bigger eye-opener than the downside surprise on the headlie payroll number (142k vs. 201k expected) was that both July and August were revised down not up (August by 37k to 136k and July by 22k to 223k). There were strong expectations of upward revision (as there will be for this September outcome). Manufacturing shed a further 20k jobs but it was the slowdown in service sector employment growth that accounted for much of the headline miss (average of 78k for August and September).
The narrow unemployment rate only held steady at 5.1% because the participation rate dropped by two tenths to 62.4%. Average weekly hours worked were also lower, 34.5 from 34.6.
On top of the weak employment report, August factory goods orders fell by a bigger than expected 1.7% vs. -1.2% expected and with July revised down to +0.2% from +0.4%). Also, the New York ISM slumped to 44.5 from 51.
The employment report knocks any thoughts of an October tightening on the head (drats, I don’t now get to write my ‘Hunt for Fed October’ headline) but with two more employment reports before the December FOMC, this can’t yet be ruled out.
St Louis Fed president Bullard did not directly reference Friday’s jobs report in a speech in NY on Friday but said that labour markets are likely to continue to improve going forward barring a major negative shock, and that the prudent course of action for the Fed would be to start to increase interest rates. He dismissed arguments that Fed should pay attention to the weak global environment, saying policy should be based on domestic variables. He did though note that the dollar’s 15% gain (this year) has been a very large movement.
Fed Vice-Chairman Stanley Fischer was also speaking Friday said he doesn’t see immediate risk of financial bubbles in the U.S., while raising concerns that the central bank’s policy tool kit to deal with such occurrences is limited and untested.
Markets reacted predictably: the US dollar was weaker across the board with commodity currencies faring well led by USD/CAD (-0.88% to 1.3152). AUD added just 0.21% in contrast, to 0.7045 and NZD +0.5% to 0.6431; the AUD is trading at 0.7058 this am. Treasuries rallied with the US10y below 2% (-4bps) and US equities rallied, liking the “lower for longer” Fed policy prospect.
CoreLogic RP Data on Sunday reported light auction activity on Saturday due to the Grand Finals and Labour Day long weekend. Just 841 auctions reported verses 2,835 the previous Saturday. The latter’s final clearance rates was just 69.7%. This Saturday’s preliminary clearance rate was 69.6%, with Sydney at 71.4% and Melbourne 67.7%.
Locally this week, we have the RBA Board meeting tomorrow – no change expected and a similar statement and forward guidance. A light’ish week for data with tomorrow’s trade and Friday’s housing finance the highlights. Today we have the TD-MI CPI gauge for September and ANZ Job Ads for September ahead of next week’s labour force survey.
Final EZ PMIs for September out tonight; Draghi is speaking tomorrow night. In the US there’s the ISM non-manufacturing report and the Fed’s composite labour market conditions index change for Sep. Also interest later in the week with several Fed speakers starting with moderate John Williams tomorrow night.
Soft payrolls: Eurostoxx 600 +0.5%, Dax +0.5%, CAC +0.7%, FTSE +0.9%. Dow +200 points to 16,472, +1.2%, S&P 500 +1.2%, Nasdaq +1.7%, VIX 20.94 -7.1%. Mumbai +0.5%, Nikkei 225 +1.7% and ASX 200 -1.2%; ASX SPI futures this morning +1.3%. US bond yields: 2s at 0.58% (-7), 10s at 1.99% (-4). WTI oil at $45.54 (+1.8%), Brent at $48.13 (+0.9%), Malaysian Tapis (yesterday) $47.83 (-3.0%). Gold at $1136.60/oz (+2.1%). Base metals: LME copper +0.1%, nickel -0.2%, aluminium -0.5%. Iron ore $53.1/t -5.2% Chinese steel rebar futures -0.7%. Soft commodities spot futures: wheat -1.0%, sugar +2.0%, cotton -0.8%, coffee 2.9%. Euro Dec 14 CO2 emissions at €8.15/t (-0.2%). The AUD/USD’s range Friday night 0.7002-0.7067; indicative range today 0.7020-0.7080; the AUD/USD is 0.7059 now
US non-farm payrolls (Sep) +142K (L: 136K, revised from 173K; E: 201K); Unemployment rate 5.1% (L: 5.1%; E: 5.1%); average hourly earnings 0.0%/2.2% (L: 0.3%/2.2%; E: 0.2%/2.4%)
US factory orders (Aug) -1.7% (L: 0.2%; F: -1.2%)
For full analysis, download report:
For further FX, Interest rate and Commodities information visit nab.com.au/nabfinancialmarkets
© National Australia Bank Limited. ABN 12 004 044 937 AFSL and Australian Credit Licence 230686.