U.S. Non-Farm Payrolls declined by 33,000 in September, versus a rise in August of 169,000, revised up from the initial observation of 156,000. This fell short of the consensus estimate of 90,000 new jobs.
The initial reaction of the main U.S. equity indices and the Dollar was to lose ground. However, the Nasdaq did stage a small recovery just shy of a five-point gain.
Clearly there has been an impact from Hurricanes Harvey and Irma that displaced workers on a temporary basis and may well have delayed hiring. One should certainly expect these storms to have hampered economic activity in Q3 and early Q4.
These figures should be taken in the round as the U.S will get a lot of the jobs back during Q4 and early Q1 2018.
Unemployment ticked lower to 4.2% and wage inflation measured by Average Hourly Earnings gained 0.5% MoM in September exceeding forecasts of 0.3%. This was a gain on the 0.2% advance in August.
This last metric is crucial for the Federal Reserve who regularly scan signals of reduced labour capacity and wage pressures on inflation. It spooked the U.S. Treasury market as in the main the curve has seen yields rise between 1 to 2 bps on the day.
As the week began stocks soared in Shanghai on the market resumption following the end of the “Golden Week” holiday. The PBoC set the USDCNH (Dollar Yuan) mid-point at 6.6493 at the first fixing after the week-long break. The previous close was 6.6528.
Equities also booked gains in Sydney, Seoul and Tokyo. Meanwhile the news about the Turkish Lira dominated forex markets after the US suspended handling of visas in Turkey after arrest of consulate staffer.
In the week ahead, the main background noise will be European and political in nature considering the aftermath of the German election, mounting concern over the integrity of the Kingdom of Spain and in the UK, the clouds hanging over the Prime Minister do not seem ready to clear. In Spain for example, the 5-Year CDS spread has jumped from 63.54bps on September 29th to 72.36 bps last Friday.
Fresh and significant economic data points are relatively limited in the week ahead, however, on Tuesday at 09:30 BST (08:30 GMT) look to the August manufacturing data. Yes, it is August data, so arguably dated, what will be interesting, however, is any pressure it will place on a divided government as a gain of just 0.3% is expected versus 0.5% in June.
Other significant data points come from the US on Thursday, Producer Prices for September expected at 0.4% cf. 0.2% in August.
On Friday the market will have to digest further fresh U.S. news on Consumer Prices and Retail Sales on Friday. The headline measure of CPI is forecast to gain 0.6% in September versus 0.4% in August whilst core CPI holds steady at 0.2%.
The U.S. economy is predominantly driven by consumer spending, which accounts for approximately 70% of all economic growth. Therefore, Retail Sales in September may prove to be “alarm bell” moment for the Federal Reserve as a gain of 1.7% is forecast versus -0.2% in August.
Retail Sales is the foremost indicator of consumer spending and a higher than expected reading should be taken as positive/bullish for the Dollar and equities although negative for bonds as it will be another reason for the Federal Reserve to consider a rate move sooner than later.
Have a great week!