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US nonfarm payrolls miss the mark for the second consecutive month
Another weak jobs report shows job growth starting to stale in the world’s largest economy.
US economy added 194,000 jobs in September
US jobs growth slowed two months in a row according to today’s nonfarm payrolls report.
Nonfarm payrolls rose by 194,000 in September, falling way below the Dow Jones estimate of 500,000. The latest stats from the US Labour Department create a more pessimistic picture about the US economy than first thought.
A large drop off in government employment may be behind this latest jobs miss. Government payrolls showed a 123,000 drop, although private payrolls increased by 317,000.
Despite the drop, the unemployment rate continues to edge lower. Today’s report puts it at 4.8%. The share of the labour market held by part-time workers working limited hours due to economic reasons fell to 8.5%.
There are a couple of other small positives to take away from this jobs report. For example, the Labour Force Participation Rate fell slightly to 61.6% from 61.7%. Average hourly earnings rose 4.6% on a year-by-year basis, in line with expectations.
Leisure and hospitality was once more the report’s saving grace. 74,000 new roles were created in this sector in September. Professional and business services contributed 60,000 new positions while retail added an additional 56,000.
Markets show mixed reactions to weak nonfarm payrolls print
Dow Jones futures initially stayed fairly flat when the jobs report landed. S&P 500 futures were rose 0.2%. Nasdaq 100 futures rose 0.58%. The 10-year Treasury yield was around 1.57%.
The Dollar Index dropped slightly, losing 0.15%, staying at around the 94.15 level.
Gold futures were up 1.44%, pushing the precious metal to $1,781.
Perhaps the most important reaction to gauge will the Federal Reserve. The Fed always watches jobs data with an eagle eye, but it’s taken on renewed importance with tapering talk fresh in the air.
The US’s Central Bank has indicated it is ready to start scaling back its massive financial stimulus. Markets expected first tapering to be announced in November at the earliest. Inflation has already soared past the Fed’s 2% target, so it makes sense.
But the jobs market is still a hot button topic for Fed council members. Officials have said they still see the labour sector way below full employment levels. As such, no rate hikes are expected to come this year. Market analysts say a hike is most likely to come in November 2022.
Mixed start for European equities ahead of NFP
Mixed start in Europe after another positive session on Wall Street as the US Senate approved raising the debt ceiling until December. Treasury yields are higher, with the 10yr hitting 1.6%, which may cool megacap tech’s recovery. All eyes today on the nonfarm payrolls report and what this means for the Fed and tapering.
Whilst European bourses are mainly in the red the FTSE 100 is trying to break above 7,100, but as noted yesterday there is moving average congestion to clear out the way just underneath this and it’s still firmly within the range of the last 6 months. The S&P 500 was up 0.83% on Thursday and has now recovered a chunk of the Monday gap and is now just 3% or so off its all-time high. Momentum just flipping in favour of bulls (we note bullish MACD crossover for futures) – has the supply chain-stagflation worry peaked? Maybe, but rising rates could undermine the big weighted tech sector in the near-term and it is unclear whether there is enough appetite among investors to go more overweight cyclicals when the macro outlook still seems somewhat cloudy in terms of growth, policy and inflation. Next week is earnings season so we either get more bullish conference calls for the coming quarters or a bit of sandbagging re supply chain issues, inflation – for the index a lot will depend on whether the C-suite is confident or cautious about their outlooks.
Inflation nation: We can keep banging on about inflation, but it’s well understood now. Even the Bank of England has woken up – BoE chief economist Pill warned that inflation looks to be more persistent than originally anticipated. UK inflation expectations have hit 4% for the first time since 2008 – soaring gas and fuel bills not helping. “The rise in wholesale gas prices threatens to raise retail energy costs next year, sustaining CPI inflation rates above 4 per cent into 2022 second quarter.” said Pill. Tax hikes and labour shortages also featuring in the inflationary mix. There was a rumour doing the round yesterday that BoE’s Broadbent has “taken Nov off the table”. However, with inflation racing higher it’s clear the Bank should be acting to hike in Nov to get ahead. Markets currently pricing a first 25bps rate hike fully by Feb 2022, another 70bps by the end of that year.
Nonfarm payrolls watch: US employers are expected to have added 490k jobs in September, up from 235k in August, which was a big miss on the forecast. NFPs are important and could be market moving later since the Fed has explicitly tied tapering + subsequent rates lift-off to the labour market. A weak number could just dissuade the Fed from announcing its taper in Nov, but I see this as a low-risk outcome. More likely is steady progress on jobs (ADP was strong on Wed) and the November taper announcement to follow. The persistence of inflation and rising fuel costs in particular has changed the equation for the Fed entirely. Benign inflation that we were used to is no longer to be counted on to provide cover for trying to juice the labour market. The problem is not demand side, it’s supply side. Central banks are seeing rising inflationary pressures that are proving more persistent than thought. Slowing economic growth and risks to the outlook stem from the supply side not the demand side – so pumping the demand side even further into a supply side crisis is not helping matters much.
Ugen der kommer: En ny måned bringer en frisk nonfarm payrolls report (ansættelsesstatistik) for USA.
En ny måned bringer en frisk nonfarm payrolls report (ansættelsesstatistik) for USA. Markederne vil håbe at Augusts store skud forbi bare var en enlig svale. Australiens og New Zealands centralbanker forbereder store udmeldinger imens OPEC+ forsamles til politiske forhandlinger i oktober.
Aftrappende kvantitative lempelser eller ej, er den nye ansættelsesstatistik vigtig for USA.
Markederne vil se om der sker en kovending på det amerikanske arbejdsmarked efter augusts tal skuffede fælt. Stigningen i antallet af NFPs (ikke-landbrugspersonel) var blot 275.000, langt fra markedets forventninger om 750.000.
Arbejdsløsheden faldt en tand til 5,2% imens arbejdsmarkedsdeltagelsen var uændret ved 61,7%. Timelønnen steg 0,6% i August, noget mere end markedets forudsigelser om en stigning på 0,3%.
Vi ved at Jerome Powell og “the Fed” elsker en stærk ansættelsesstatistik. Vi ved også, at uanset hvad septembers data bringer kommer en aftrapning – formentlig i november. Hvis denne fredags rapport virkelig er chokerende, kan det dog forstyrre the Fed’s planer for aftapning, men alle indikatorer viser at vi styrer mod aftrapning snart.
Fed-formand Powell tror dog stadig at USA er langt fra den beskæftigelse, som han ønsker.
I sidste uge udtalte Powell følgende: “Det jeg sagde i sidste uge var, at vi var lige ved at have nået kravet for aftrapning. Jeg gjorde det klart, at vi i min optik er langt fra fuld beskæftigelse.”
Hvornår kommer det? Ifølge en nylig spørgeundersøgelse foretaget af USAs nationale forening af erhvervsøkonomer, tror 67% af deltagende økonomer at beskæftigelsen vil nå sit før-Corona niveau ved slutningen af 2022. Lige under en tredjedel forventer at genopretningen af arbejdsmarkedet først sker i 2023.
Der er en lang, hård vej tilbage til normalen. Vi har dog i flere tilfælde i 2021 set en stigning i ansættelsen efter en tidligere, skuffende måned.
Stigningen fra januar til februar så f.eks. en ændring fra -306.000 ikke-landbrugsansatte til +233.000. Mellem april og maj 2021 var ændringen fra 269.000 til 614.000. Der er altså en præcedens her.
Flere end 7,5 mio. amerikanere har også fået stoppet deres Corona-relaterede kontanthjælp. $300-ekstrabetalinger blev afsluttet først i september da regeringen er begyndt at nedskalere støtten. Kunne dette være katalysatoren for øget beskæftigelse? Det ser vi måske i fredagens ansættelsesstatistik.
Udenfor USA er begge de store oceaniske centralbanker sat til at opdatere deres renter i denne uge.
Vi begynder med Australien, hvor nationalbankdirektør Philip Lowe og hans kollegaer lod til at bevæge sig i retning af en mere fleksibel pengepolitik ved septembers møde i Reserve Bank of Australia. Som sådan forventer markedet ikke nogen drastiske ændringer i oktober.
Vi så renterne forblive på samme lave niveau i Australien som i de forgangne 18 måneder. Den australske nationalbank forbliver stålsat på ikke at hæve sin udlånsrente indtil “den faktiske inflation holder sig stabilt ved målsætningen på mellem 2 og 3 procent”.
Septembers udmelding afslørede dog nogle nuancerede ændringer.
Den korte- og tre-årige udlånsrente forblev begge på 0,1%, men obligationsopkøbsprogrammets aftrapning blev dog justeret. Oprindeligt skulle det senest genovervejes i november, efter en nedjustering til 4 mia. AU$ pr. uge i juli. Nu vil det forblive på samme niveau frem til tidligst februar 2022.
Dette betyder at tempoet på RBA’s aktivopkøb ikke vil falde før næste februar. Efter mødet i juli, troede man at nationalbanken ville genoverveje obligationsopkøbet hver tre måneder for så at udfase det helt i løbet af året. For nu ser det ikke ud til at blive tilfældet.
Vi forventer dog stadig ingen overraskelser når RBA leverer sin renteudmelding for oktober tirsdag morgen.
Markederne forventede måske mere aggressive bevægelser fra Reserve Bank of New Zealand – men nylige kommentarer fra vicedirektør Christian Hawksby antyder at snak om en større stigning i udlånsrenten er forhastet.
“Globalt følger nationalbanker en jævn vej og holder deres renter uændrede eller foretager ændringer med 0,25 procentpoint,” sagde Hawksby, og afsluttede derved alle tanker om en mulig ændring af New Zealands kortfristede udlånsrente (aktuelt 0,25%) på 0,5 procentpoint.
I stedet vil renten sandsynligvis stige i trin, før den når 1,5% ultimo 2022.
Som altid er der dog en stor COVID-19 skygge over New Zealands finanspolitik. Landet gik for nylig tilbage til nedlukning efter en stigning i tilfælde af deltavarianten. Selv om sygdommen viser sig igen, kan det lille antal tilfælde have været nok til at give RBNZ et chok.
Ifølge Reuters har markederne prissat en 60% ændring af chancen for en rentestigning på onsdag når direktør Orr taler.
Afslutningsvis mødes OPEC og deres allierede til deres månedlige forsamling og politikdiskussion på mandag.
Med høje priser og efterspørgslen ligeså, vil vi formentlig se en blåstempling af en stigning i produktionen. OPEC+ har forpligtet sig til at producere yderligere 400.000 tønder/dag hver måned frem til slutningen af næste år, i sit forsøg på at genvinde pandemirelaterede tab.
Ifølge septembers månedlige oliemarkedsrapport, forventer OPEC+ at efterspørgslen vil overstige 2019-niveauet ved udgangen af 2022.
Prisen på Brent crude sniger sig i skrivende stund op imod $80, og det får alarmklokkerne til at ringe i USA. USA har historisk haft billigere brændstof end mange andre I-lande og alt der kan udfordre det er uacceptabelt hos både almindelige amerikanere og Joe Biden.
Præsidenten siger at USA har OPEC i tale vedrørende en yderligere stigning i volumen for at dække dette – og han ignorerer måske det faktum at amerikansk shale er klar til at tilføre mindst 800.000 tønder/dag til det globale udbud når først det kommer i gang.
OPEC+ er alligevel mest sin egen. Alt det gør er for at tjene sine medlemmer, allierede og olieprisen i hele verden. Om Bidens ønsker falder på døve øren vides ikke, men jeg ville ikke blive overrasket over at se OPEC-JMMC holde sig til sin egen agenda i oktober og frem i tiden.
Vigtige økonomiske data
|Mon 04-Oct||All Day||OIL||OPEC-JMMC Meetings|
|Tue 05-Oct||4.30am||AUD||RBA Rate Statement|
|3.00pm||USD||ISM Services PMI|
|Wed 06-Oct||2.00am||NZD||Official Cash Rate|
|2.00am||NZD||RBNZ Rate Statement|
|1.15pm||USD||ADP Nonfarm Employment Change|
|3.30pm||OIL||US Crude Oil Inventories|
|Thu 07-Oct||3.30pm||GAS||US Natural Gas Inventories|
|Fri 08-Oct||1.30pm||CAD||Employment Change|
|1.30pm||USD||Average Hourly Earnings m/m|
|1.30pm||USD||Nonfarm Employment Change|
|Tentative||USD||Treasury Currency Report|
Monthly recap: German elections, hot UK inflation and NFP miss
We recap some of the key market movers from September in this monthly round-up.
Monthly markets recap: September 2021
Germany waves goodbye to Angela Merkel in tight federal elections
After sixteen years at the helm, Angela Merkel will step down as German Chancellor following late September’s closely contested German elections.
It’s a hugely fragmented result. Pretty much all parties did worse than they thought. The SPD is the majority party, but they’re still very close to the CDU to really have a massive advantage. You could only separate them with a cigarette paper really.
The Green’s, after topping the polls four months ago, came in third while the FDP came in fourth.
Olaf Scholtz, the leader of the SPD, now has his work cut out trying to turn these close results into a working coalition. But what we’ve seen is what our political guru and Blonde Money CEO Helen Thomas calls a Code Red for Germany – that is a shift to the left with a bit of a green hint too.
What the next German federal government looks like now is up for debate. The Green Party is probably going to be central, after doubling their Reichstag presence, but it’s out of the CDU and FDP to see who becomes the third coalition partner. See Helen Thomas’ election round-up below for more information.
Nonfarm payrolls’ massive miss
Nonfarm payrolls came in well below expectations in a wobbly US jobs report.
In August, 275,000 new jobs were added to the US economy, falling far below the 750,000 forecast.
The unemployment rate dropped to 5.2% while labour force participation stayed unchanged at 61.7%. Hourly earnings rose 0.6% in August, surpassing market predictions of a 0.3% rise.
Jerome Powell and the Federal Reserve keeps a close eye on the jobs report. Labour market participation has been one of the key metrics the Fed has been looking at throughout the pandemic to decide on whether to start tapering economic support.
We know that Jerome Powell and the Fed loves a strong jobs report. But we also know that tapering is on its way anyway – likely in November. August’s job data may not have impacted decision making too much, given the tapering signals were made long before its release.
However, Fed Chair Powell still believes the US is still far from where he’d comfortably like employment to be.
Speaking last week, Powell said: “What I said last week was that we had all but met the test for tapering. I made it clear that we are, in my view, a long way from meeting the test for maximum employment.”
A recent survey taken by the National Association for Business Economics showed 67% of participating economists believed job levels won’t reach pre-pandemic levels until the end of 2022.
UK inflation jumps
August’s CPI data, released in September, showed UK inflation had reached 3.2%. That’s the highest level since 2012.
Rising from 2% in July, the latest CPI print also showed a huge month-on-month rise in prices. Inflation soared well clear of the Bank of England’s 2% target – although the UK central bank did say it believed inflation would hit 4% in 2021.
However, some market observers believe there is a risk that inflation will overshoot even the 4% level.
The question is how will the BoE respond? A more hawkish tilt could be possible.
Markets.com Chief Markets Analyst Neil Wilson said: “Unanchored inflation expectations are the worst possible outcome for a central bank they’ve been too slow to recognise the pandemic has completely changed the disinflationary world of 2008-2020.
“My own view, for what it’s worth, is that the Bank, just like the Fed, has allowed inflation overshoots to allow for the recovery, but it’s been too slow and too generous. Much like the response to the pandemic itself, the medicine (QE, ZIRP) being administered may be doing more harm (inflation) than good (growth, jobs).”
China intensifies its crypto crackdown
Bitcoin was rocked towards the end of September after being hit with a body blow landed by the People’s Bank of China.
The POBC has ruled that all cryptocurrency transactions in China are illegal. That includes all transactions made by Chinese citizens domestically and those coming from offshore and overseas exchanges.
BTC lost over 8% and nearly dropped below the $40,000 mark on the news from Beijing. It has subsequently staged a comeback, but this latest move from China tells us a couple of important things about crypto.
Number one: volatility is ridiculous. The fact that Bitcoin is still so susceptible to big swings on both positive and negative news shows it’s still very volatile. It seems hard to see a future driven by crypto right now if such price swings will be the norm. If this is the case, let’s hope it calms down in the future.
Secondly, it’s that central banks are still wary of digital finance. In China’s case, it loves control.
Beijing’s official stance is that cryptocurrency is a) illegitimate, b) an environmental disaster, and c) something it cannot control completely. Freeing finances from government oversight is the entire point of decentralised finance (DeFi) after all. In a country as centralised as China, that’s a no-go.
China has pledged to step up its anti-crypto, anti-mining efforts further. This could cause major ripples for Bitcoin and the digital finance sector as a whole. A significant chunk of global token supply comes from Chinese miners. Someone else will have to pick up the slack.
Oil & gas prices stage major rally
A global gas shortage and tighter oil supplies pushed prices into overdrive towards the end of September.
Natural gas, in particular, was flourishing. At one point, gas had climbed above $6.30, reaching highs not seen for three years. Basically, there’s not enough gas to go around. High demand from the UK and EU is pushing prices up, while the US, which is meant to be in injection season, is also suffering. Asian demand is also intensifying.
In terms of oil, a supply squeeze coupled with higher demand caused by major economies reopening is putting a support under oil prices.
Traders are also confident. Energy markets are the place to be right now. As such, trader activity appears to be pushing these new highs and is confident regarding the market’s overall strength.
Goldman Sachs has also revised its oil price targets upwards.
Goldman said: “While we have long held a bullish oil view, the current global oil supply-demand deficit is larger than we expected, with the recovery in global demand from the Delta impact even faster than our above-consensus forecast and with global supply remaining short of our below consensus forecasts.
“The current oil supply-demand deficit is larger than we expected, with the recovery in global demand from the Delta impact even faster than our above-consensus forecast and with global supply remaining short of our below consensus forecasts.”
Week ahead: Nonfarm payrolls take the spotlight
It’s all about major economic movers this week. The US jobs report for August is released on Friday, while we kick off the week with the latest Chinese manufacturing PMI numbers. OPEC and allies are due to hold meetings too, making it a busy week for the global economy.
The US jobs market has taken us to abyssal lows and new dizzying growth heights across the past 18 months. The pandemic has certainly taken its toll, but we’ve seen new life flow through the US’ economic veins too with more workers filling job gaps.
Just take last month’s nonfarm payrolls. July’s data saw an expectation-smashing 943,000 new jobs added to the economy.
Friday is when August’s job data is published. Markets of course will be looking at it closely. It’s the big release of the month, after all. But this week’s job’s report takes on a new character given trends we’ve seen in 2021.
For instance, April’s nonfarm payrolls stood at 785,000 new roles, registering a month-on-month increase of over 200,000. But in May, the NFP report shrank by over 500,000 to 269,000.
June and July showed consecutive growth months, but it’s important to not get too carried away. We’ve previously seen a bumper report give way to stunted growth in the following month fairly recently.
The Federal Reserve has explicitly tied policy decisions to labour market health, so this report will be of particular interest in the wake of last week’s Jackson Hole symposium.
As the start of another month brings another US jobs report so too does it bring another set of OPEC+ meetings.
Last week WTI and Brent benchmark dropped to 3-month lows, though they have since staged a bit of a rally with Brent crossing over the $70 threshold and WTI pushing over $67.
Changing demand expectations have weighed on crude prices. Key importers have introduced travel restrictions or new lockdowns. Some Chinese oil ports, for example, have been shuttered as Delta-variant COVID-19 cases rise.
But OPEC+ has so far stuck to its guns. It’s still committed to upping production by some 400,000 bpd per month from August onwards. It also saw no reason to push those numbers high at the urging of President Biden. For now, 400,000 bpd per month is the level.
It’s important to reiterate everything OPEC and its allies have done this year has been to support oil prices. With COVID-19 cases mounting worldwide, the supply/demand tightrope the cartel is walking may have narrowed but OPEC+ is likely banking on vaccine rollout to help pick up the slack.
We all know oil is a key ingredient in economic growth in our current fossil-fuel based worldwide economic system. China is the world’s largest importer of crude, so the nation’s manufacturing output falls under intense scrutiny – especially in the light of potentially lower oil imports in the past couple of months.
We may be able to see the effects of less oil and a surge in Delta-variant cases across the past month in August’s manufacturing PMI reading.
July’s reading of 50.4 was the lowest reading for 15 months. June’s 51.3 was a slight bump on May’s 51.0, but the trend seems to be factory output is slowing in the world’s second-largest economy.
Shutting ports isn’t going to do factory output any favours. Neither will current high commodity prices. Labour shortages and higher input costs have factored into slowdowns in UK and US manufacturing too. This isn’t a localised Chinese phenomenon.
A PMI reading above indicates that there is still growth, but we’re seeing China perilously close to slipping under that. Tuesday’s PMI release will reveal all.
Major economic events
|Mon 30-Aug||3.00pm||USD||US Pending House Sales|
|Tue 31-Aug||2.00am||CNH||Manufacturing PMI|
|3.00pm||USD||CB Consumer Confidence|
|Wed 01-Sep||ALL DAY||OIL||OPEC Meetings|
|ALL DAY||OIL||OPEC-JMMC Meetings|
|8.55am||EUR||German Final Manufacturing PMI|
|1.15pm||USD||ADP Nonfarm Employment Change|
|3.00pm||USD||ISM Manufacturing PMI|
|3.30pm||OIL||US Crude Oil Inventories|
|Thu 02-Sep||3.30pm||GAS||US Natural Gas Inventories|
|Fri 03-Sep||1.30pm||USD||US Nonfarm Payrolls|
|1.30pm||USD||Average Hourly Earnings|
|3.00pm||USD||ISM Services PMI|
|Tentative||GBP||Monetary Policy Report Hearings|
Nonfarm payrolls: US adds 943,000 new jobs in July
The US economy added 943,000 new jobs in July according to today’s nonfarm payrolls print.
A strong month for US jobs
The unemployment rate fell to 5.4% according to the US Bureau of Statistics as hiring rose at its highest rate for nearly a year last month. The payroll increase was also the largest since August 2020.
New jobs have been added to the economy for six consecutive months.
Estimates had varied wildly this morning before this afternoon’s report was published. Some more pessimistic economists had predicted 350,000 new jobs. Some put the figure closer to 1.2m. However, the Dow Jones estimate came to 845,000. Given this is pretty much the gold standard for NFP number forecasting, we can consider today’s report a big success.
This is doubly true given the market was expecting labour shortages, caused by businesses’ perceived hiring difficulties and rising Delta variant cases.
Average hourly wages increased 0.4% on a monthly basis, beating forecasts. Wages are now 4% higher than they were a year ago.
“The data for recent months suggest that the rising demand for labour associated with the recovery from the pandemic may have put upward pressure on wages,” the BLS said in the report. It was also quick to point out that Covid is still skewering the data.
Overall, job participation stands at 61.7% – the highest level since March 2020. Are things getting back on track for the US? This report certainly suggests that the case.
However, let’s be realistic. The Delta variant is running rampant in the US, where infections are up to 100,000 per day. While these stats are all very encouraging, the pandemic is by no means over.
How did the markets react to today’s NFP print?
The Dow Jones rose 155 points, equating to 0.4%, reaching an intraday record high. Likewise, the S&P 500 rose 0.2% for its own intraday all-time high. The Nasdaq, due to its tech-heavy nature, did not fare so well, dropping 0.2%.
According to CNBC, bank stocks powered today’s gains. Wall Street big names like JPMorgan, Bank of America, and Wells Fargo all recorded 1% gains at market open. Gains were also seen in energy, retailer, and industrial stocks.
On the flip side, tech stocks fell. Observers suggested this may be from investors taking money out of these and push them into growth stocks. Amazon, Apple, and Salesforce were trading slightly down.
The dollar continued to rally on today’s strong NFP report. The dollar index had climbed 0.56% to reach 92.81.
Subsequently, GBP/USD and EUR/USD pulled back on the stronger dollar. At the time of writing, GBP/USD was floating around the 1.387 level, after starting the day pushing over 1.390. EUR/USD was down about 0.67% at the 1.176 mark.
Markets brace for key US job report
Today’s big event is the release of the US nonfarm payrolls report tracking American labour market strength.
July was a bumper month for payrolls with 845,000 new jobs added to the US economy. Is sustained labour market recovery on the way? There remains about a 6.8 million gap in employment numbers needing to be filled to bring up to pre-pandemic levels.
What’s interesting is that economists are presenting a very mixed outlook regarding today’s report. Estimates are varying wildly. The Delta COVID-19 variant has shaken things up in the US over the past month. Cases have spiralled and are heading towards 100,000 per day – higher than in summer 2020 at the pandemic’s height. Like it has for the wider economy, the Delta variant is the same for the job’s market.
Wall Street forecasts are so different it’s hard to gauge what the report’s actual outcome will be at this stage. At the lowest end, estimates clock in at 350,000, accounting for holes in the jobs sector created by the Delta variant. Top-end estimates go as high as 1.2 million.
The unemployment rate is expected to fall from 5.9% to 5.7% on today’s NFP print.
Jerome Powell and the Fed will be watching this metric very closely. The health of the US jobs market is one of the conditions the Fed considers when looking at any alterations to its bond-buying programme.
The Dow Jones, S&P 500, and NASDAQ were all trending slightly down as they wait for the NFP release this afternoon.
European stocks start today with a muted tone too. The FTSE 100, in particular, has dropped roughly 10 points, hitting 7,109. CAC 40 was down 6 points at 6,757, and the Stoxx 50 showed similar performance, falling 6 points to 4,156. Nothing too much to worry about, but a broadly even trend across Europe. Germany’s DAX was in the green, but by rising 2 points, it’s essentially flat.
GBP/USD heads back towards the 1.920 level this morning, down roughly 0.6% on the day. A stronger dollar is making gains against the pound, explaining the pairing’s reversal. The dollar index made gains this morning as it reached 92.36, or roughly 0.07% up in day trading.
Oil prices made some gains back after falling yesterday. WTI, however, is still trading below $70 at $69.56 after starting the week around the $73 level. Brent futures are currently trading at $71.83 after showing similar pullbacks to WTI.
Week Ahead: All eyes on US jobs report
A busy week ahead for the markets with the US nonfarm payrolls as the marquee event, as well as two major central bank statements.
Let’s start with the latest US nonfarm payrolls print.
June’s reading performed way above expectations, and the markets will be watching closer than ever when the latest data is released on Friday.
850,000 payrolls were added to the US economy in June – way above the 720,000 forecast. This was also the sixth consecutive month where new additions were made.
However, the unemployment rate rose from 5.8% to 5.9% – higher than the predicted 5.6% rate forecast. Labour force participation, the go-to metric for gauging workforce shortages nationwide rate didn’t budge at 61.6%.
Hiring appears to have dipped a little overall throughout the spring. There are a couple of reasons for this: virus fears; childcare costs; better unemployment insurance; stimulus & furlough schemes. However, it’s been reported that firms have upped wages in order to entice workers into taking new positions.
The employment rate is also an important measure for Fed Chairman Jerome Powell when assessing stimulus and support levels for the US economy.
We know Powell and co. are relatively comfortable about letting the economy run hot, even in the face of rising inflation. As Powell pointed out at the last Fed meeting, there remains a gap of 7.5 million jobs missing from the US economy, although some reports suggest the figure is 6.8m. Until these open positions are filled, expected more Fed stimulus and support.
In terms of indices, the S&P 500 and Nasdaq responded very well to last month’s bumper jobs report, reaching new record highs. Indices traders will be hoping for more of the same with July’s print.
Sticking with US-related data, ISM, one of the key purchasing manager index reporters for the American economy, shares its manufacturing and services outlooks this week.
US manufacturing was still robust last month, according to ISM’s PMI report, but supply chain issues continue to inhibit growth. The factories printing was rated at 60.6 – down from the 61.2 score registered in May.
Momentum is still strong. Four out of the five subindexes rated by ISM showed high growth. Consumer interest in new goods is still high, despite rising prices. But labour shortages, coupled with the rising price of commodities and materials, has caused bottlenecks and shortages as manufacturers struggle to keep up with demand.
“Record-long raw-material lead times, wide-scale shortages of critical basic materials, rising commodities prices and difficulties in transporting products are continuing to affect all segments of the manufacturing economy,” said Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee.
The same can be said for the services sector: it expanded in June, but that expansion had softened compared with a best-ever May rating. In this case, the index fell from 63.5 to 60.1.
“The rate of expansion in the services sector remains strong, despite the slight pullback in the rate of growth from the previous month’s all-time high,” explained Chair of the ISM Services Business Survey Committee Anthony Nieves. “Challenges with materials shortages, inflation, logistics and employment resources continue to be an impediment to business conditions.”
Keeping that momentum going is all important for America’s economic health – especially as the US is expected to be the driving force behind the global economic recovery across the rest of this year and beyond.
Moving away from data, a pair of central bank statements are on the way next week.
Starting with the Bank of England, rising inflation is the big one here.
In June, inflation reached 2.5%, thanks to widespread increase in consumer goods. This could just be pent-up demand in the British economy finally being unleashed, but as inflation is now at its highest levels for three years, economists’ nerves may be tested.
Governor Bailey has already made his stance clear: the price jumps are only temporary, and we could see it run as high as 3% by the year’s end. It should then fall away back to acceptable levels after that. Currently, the BoE has a mandate to steer inflation towards 2% and keep it there.
However, Bailey has stated he would be ready to pitch rate hikes should inflation run out of this control.
The Reserve Bank of Australia also shares its latest policy thinking and direction this week.
Chances are, no big changes are coming. Governor Philip Lowe has been very clear that no rate hike will be forthcoming until at least 2024. That’s despite Australia’s strong economic fundamentals.
The historic low cash rate of 0.1% isn’t going anywhere. What’s interesting, however, is that July’s meeting led to some tweaks in Australia’s QE programme. The scale has been pulled back. From September onwards, the rate of RBA bond purchases will slow from AUD$5bn to AUD$4bn per week.
The groundwork for more tweaks to policy has been laid by Governor Lowe. Let’s see what this week’s meeting brings in terms of any small-scale changes.
We can’t finish a preview of the week’s key events without touching on US earnings season.
Week three of large cap earnings reports for Q2 2021 begins on Monday. It’s not as busy as the previous week’s reporting flurry, but we still have some significant reports coming in, namely Alibaba and Uber.
Check out our US earnings calendar for more information on which major firms are sharing earnings reports this week or see below.
Major economic data
|Mon 2-Aug||8.55am||EUR||German Final Manufacturing PMI|
|3.00pm||USD||US ISM Manufacturing PMI|
|Tue 3-Aug||5.30am||AUD||RBA Rate Statement|
|11.45pm||NZD||Employment Change q/q|
|Wed 4-Aug||2.30am||AUD||Retail Sales m/m|
|1.15pm||USD||ADP Nonfarm Employment Change|
|3.00pm||USD||US ISM Services PMI|
|3.30pm||OIL||US Crude Oil Inventories|
|Thu 5-Aug||12.00pm||GBP||Asset Purchase Facility|
|12.00pm||GBP||BOE Monetary Policy Report|
|12.00pm||GBP||MPC Asset Purchase Facility Votes|
|12.00pm||GBP||Monetary Policy Summary|
|12.00pm||GBP||MPC Official Bank Rate Votes|
|12.00pm||GBP||Official Bank Rate|
|3.30pm||GAS||US Natural Gas Inventories|
|Fri 6-Aug||2.30am||AUD||RBA Monetary Policy Statement|
|1.30pm||USD||Average Hourly Earnings q/q|
|1.30pm||USD||Nonfarm Employment Change|
Key earnings data
|Mon 2 Aug||Tue 3 Aug||Wed 4 Aug||Thu 5 Aug|
|Arista Networks||Alibaba||General Motors||Ball Corp|
|Activision Blizzard||The Kraft Heinz Co||Beyond Meat|
|Uber Technologies||Square Inc|
|The Trade Desk|
|Virgin Galactic Holdings|
Week Ahead: US jobs report holds key to market direction amid inflation fears
US nonfarm payrolls dominate the data calendar this week. The key jobs market metric is usually a massive market mover, so a lot of attention will be on the state of the nation’s labour market when the latest reading is printed on Friday.
OPEC-JMMC monthly meetings kick off mid-week as oil markets strengthen globally. The Reserve Bank of Australia also shares its latest cash rate decision –likely a copy-paste of May’s non-mover.
Starting with the US, the country will be hoping some of March’s job market fervour shows up in May’s reading following April’s bust. Last month’s NFP saw roughly a quarter of expected new jobs created, falling far below estimates.
April’s numbers clocked in at 266,000 jobs created. Estimates were hoping for over a million, buoyed by the rapid economic growth and March’s NFP coming in at 916,000.
As of the end of April, 9.8 million Americans were still unemployed. What’s interesting is that job openings at the end of March totalled 8.1 million, substantially narrowing the wedge. Labour demand and labour supply are realigning but aren’t quite level yet, causing some friction.
There are still concerns amongst the general population about contracting the virus, despite 50% of eligible recipients getting vaccines. Two-thirds of school age children have not returned to the classroom. Some may not be willing to give up their unemployment benefits just yet either.
The jobs report will be closely watched by the market as a guide on how soon the Federal Reserve may be expected to start removing accommodation. The Fed has tied its colours to the employment mast and the slower the gains in employment, the easier Fed policy will remain. Inflation complicates the picture but thus far markets believe the Fed when it says it will look through ‘transitory’ price pressures.
OPEC-JMMC meetings are slated for June 1st. The cartel’s 2021 mission has been to protect oil markets and strengthen prices. Production cuts have been the key here. Full pre-pandemic output volumes are yet to be re-established. Despite global economies reopening, and oil demand rising, OPEC and allies are still feeling cautious.
Even so, more crude is coming from OPEC members. They have been gradually tapering output curbs for the past couple of months. June’s meeting will be cementing plans for July and August, i.e. whether to ramp up the taper or keep it in line with the cartel’s original plan.
At the April 1st meeting, OPEC-JMMC agreed to bring 2.1m barrels per day (bpd), back to markets between May-July. Cuts will be eased back to 5.6m bpd.
OPEC is banking on higher oil demand this year. Its recovery outlook suggests daily demand will reach 6m bpd by the end of 2021 – a major rise against 2020’s levels, but still some 3.5bpd less than pre-pandemic levels.
While vaccine rollout has been successful in key importing countries, there are still concerns. Rising coronavirus cases in India, the world’s third-largest oil importer, has weighed heavily on OPEC. There is still lots of ground to cover before global oil markets resemble anything like their pre-Covid 19 selves.
Attention will also be on the Reserve Bank of Australia – the next central bank to fill us in on any upcoming tweaks to Australia’s financial policy.
A cash rate decision is due. Chances are nothing momentous is coming. Australia’s cash rate has remained at 0.10% since November 2020. Governor Dr Philip Lowe has indicated it’s probably not going to rise in 2021. Based on previous statements, we won’t see an Australian cash rate hike until 2024 at the earliest.
Dr Lowe states inflation targets and a lower unemployment rate are the key metrics the RBA is using as cash rate hike triggers. The RBA expects inflation to be 1.5% in 2021, it said in its May statement, and 2% in mid-2023. Before it raises rates, the Bank has repeatedly said it wants inflation to be ‘comfortably’ within the 2-3% range.
In terms of labour markets, the RBA expects unemployment rates to reach 4.8% by year-end 2021 before dropping slightly to 4.4% in 2022.
Major economic data
|Mon 31-May||2.00am||CNH||Manufacturing PMI|
|Tue 01-Jun||All Day||Oil||OPEC-JMMC Meeting|
|5.30am||AUD||RBA Rate Statement|
|3.00pm||USD||ISM Manufacturing PMI|
|Wed 02-Jun||2.30am||AUD||GDP q/q|
|Thu 03-Jun||2.30am||AUD||GDP m/m|
|3.00pm||USD||ISM Services PMI|
|3.30pm||Nat gas||US Natural Gas Inventories|
|4.00pm||Oil||US Crude Oil Inventories|
|Fri 04-Jun||1.30pm||CAD||Employment Change|
|1.30pm||USD||Average Hourly Earnings m/m|
|1.30pm||USD/Indices/Gold||Non-farm Employment Change|
Key earnings data
|Tue 01-Jun||Zoom||Q1 2022 Earnings|
|Scotiabank||Q2 2021 Earnings|
|Hewlett Packard||Q2 2021 Earnings|
|Wed 02-Jun||Splunk||Q1 2022 Earnings|
|Thu 03-Jun||Broadcom||Q2 2021 Earnings|
|Slack||Q1 2022 Earnings|
NFP miss: does it mean anything?
US jobs growth cooled with just 226k created in April, well below the 1m+ expected. The blowout number from March was also revised lower by 146k to 770k. Wages rose more than expected.
What does it tell us, if anything?
1) Don’t read too much into this print – the US economy is by most measures booming. Payrolls are a lagging indicator and at the mercy of a huge number of factors. Payrolls can sometimes produce a monthly print way off the reservation. Moreover, +266k is a good number in normal circumstances and the country is still in the throes of the pandemic – expectations might have gotten a little elevated for this number (guilty). Too much hype maybe a factor here in some of these market moves on the announcement – the narrative doesn’t really change IMHO.
2) If slower employment growth is something to consider, then it will simply keep the Fed easier for longer. This was reflected in the surge in tech/growth and a reversal of the reflation trade (ie Dow lower, NDX higher) in the futures market. Overall, this ought to be a net positive for risk assets like stocks, albeit it may create yet more churn and rotation, which makes it messier. As per point one, however, this print does not mean that suddenly WFH stocks are about to suddenly get out of their funk, or FAANGS are more attractive than they were yesterday. Similarly, it does mean that the reflation trades are less appealing. If anything, it simply has created a more useful entry point for some – as can be seen by the fading of the initial kneejerk on the Dow and elsewhere.
3) There has been some evidence that poorer folks are better off than they were thanks to stimulus cheques. These won’t last forever, but there is an argument that ongoing government support create a moral hazard around incentivising people back into work post-pandemic. A question that does need to be asked by the Fed and Treasury is how their policies are going to improve productivity and generate real employment gains.
4) Even if yields and the value/cyclical equity market plays recover – as they seem to be doing in the first half hour of trading on Wall Street today – the print does not do an awful lot for USD. Bonds were bid, and yields moved sharply lower, with the 10yr down under 1.5% in short order. The sharp move lower in yields lifted gold and sent the US dollar lower to breach the late April low and snap the rising trendline. If we can use this print as anything to go by, then it means the Fed is inching further away from a taper than the ECB which ought to be supportive for a long-awaited EURUSD rally to 1.25.
5) Rising wages underscore a sense that employers are struggling to find workers. Lower paid jobs that were lost in the pandemic are coming back, but they may not be as low paid as they used to be. This suggests further upside pressure on inflation over the coming months as businesses seek to attract staff. The problem for the Fed becomes this: if inflation picks up and employment does not recover quickly enough, its’ current policy stance will be questioned and the bond market will start to flex its muscles.