Sunday Oct 3 2021 05:56
14 min
A new month brings a fresh nonfarm payrolls report. Markets will be hoping August’s big miss was just a fluke. Aussie and Kiwi central banks prep big statements too while OPEC+ gathers for its October policy talks.
Tapering or no tapering, Friday’s nonfarm payrolls report is still a big one for the US.
Markets will be looking to see if there’s a reversal of fortune in the American jobs market after August’s print fell way below expectations. NFPs totalled 275,000 for August, missing market expectations of 750,000 by a country mile.
The unemployment rate had dropped a smidgen lower to 5.2% while labour force participation went unchanged at 61.7%. Hourly earnings rose 0.6% in August, surpassing market predictions of a 0.3% rise.
We know that Jerome Powell and the Fed loves a strong jobs report. But we also know that regardless of September’s data tapering is on its way – likely in November. Of course, if this Friday’s report is truly shocking, that may cause a wrinkle in the Fed’s tapering plans, but all indicators suggest we’re on course for tapering soon.
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.”
When will that come? According to a recent survey taken by the National Association for Business Economics, 67% of participating economists believe job levels will reach pre-pandemic levels by the end of 2022. Just under a third believe job recovery won’t happen until 2023.
There is a long road to recovery still to tread. We have seen, however, multiple instances across 2021 where nonfarm payrolls jump after a previous disappointing month.
The leap from January to February, for example, saw a leap from -306,000 NFPs to +233,000. Nonfarm payrolls rose from 269,000 to 614,000 between April and May 2021. There is a precedent here.
More than 7.5m Americans have also had their pandemic unemployment support snipped. $300 top-up payments were halted in early September as the government begins scaling back fiscal aid. Could this be a catalyst for more hires? Perhaps we’ll see in Friday’s nonfarm payrolls print.
Away from the US, both major Antipodean central banks are due to make their most current rate statements this week.
Starting with Australia, Governor Phillip Lowe and his colleagues seemed to move towards a more flexible policy at September’s Reserve Bank of Australia meeting. As such, markets aren’t anticipating any drastic changes in October.
We saw rates stay as low as they have past year and a half in Australia. The RBA remains committed to fully committed to not raising the cash rate “until actual inflation is sustainably within the 2 to 3 per cent target range”.
September’s statement did reveal some nuanced changes.
The cash rate and three-year control rate all remained at 0.1% but the bond-buying programme taper wording did get a tweak. Originally, it was going to be reviewed no later than November, having been dropped down to AU$ 4bn per week in July. Now, it will be kept at that level until at least February 2022.
Basically, all this means is that the pace of RBA asset purchases isn’t going to slow until next February. After July’s meeting, it was thought that the Bank would begin reviewing bond-buying every three months before removing it altogether over the course of the year. That doesn’t look like the case just yet.
Still, we’re not really expecting any fireworks when the RBA delivers its October rate statement on Tuesday morning.
Markets may have anticipated more hawkish moves from the Reserve Bank of New Zealand instead – but recent comments from Assistant Governor Christian Hawksby suggest any talk of a major cash rate hike are premature.
“Central banks globally tend to follow a smoothed path and keep their policy rate unchanged or move in 25 basis point increments,” Hawksby said, putting paid to any ideas of a 50 basis point upswing in New Zealand’s 0.25% cash rate.
Instead, it is likely to follow an incremental path before taking rates up to 1.5% by the end of 2022.
But, as ever, there is a big COVID-19 shadow looming over New Zealand fiscal policy. The country recently went back into lockdown after a rise in Delta variant cases. Although it’s starting to remerge once again, the small number of incidents may have been enough to give the RBNZ the jitters.
According to Reuters, markets are pricing in a 60% chance of a rate hike on Wednesday when Governor Orr speaks.
Finally, OPEC and allies meet once more for their monthly get together and policy bash on Monday.
With prices high and demand along with them, we’ll probably see a rubber-stamping of more output to come. OPEC+ has committed to pumping an additional 400,000 bpd each month until the end of next year as it seeks to recover pandemic-induced losses.
According to September’s Monthly Oil Market Report, OPEC+ believes demand will exceed 2019 levels by the end of 2022.
With Brent crude nudging towards $80 at the time of writing, the US is sounding alarm bells over the price of gasoline. The US has historically enjoyed much cheaper petrol prices than some other developed nations and anything that challenges that is seen as unacceptable by Joe Sixpack and Joe Biden.
The President said the US is currently in talks with OPEC about raising volumes further to cover this – perhaps ignoring the fact that US shale is ready to add at least 800,000 bpd to global supplies once it gets up and running.
OPEC+ is very much its own creature anyway. Everything it does is in the interest of its member states, allies, and worldwide oil prices as a whole. Whether Biden’s pleas fall on deaf ears, we don’t quite know, but I wouldn’t be surprised to see OPEC-JMMC sticking to its own agenda in October and beyond.
Date | Time (GMT+1) | Asset | Event |
Mon 04-Oct | All Day | OIL | OPEC-JMMC Meetings |
Tue 05-Oct | 4.30am | AUD | RBA Rate Statement |
4.30am | AUD | Cash Rate | |
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 | CAD | Unemployment Rate | |
1.30pm | USD | Average Hourly Earnings m/m | |
1.30pm | USD | Nonfarm Employment Change | |
1.30pm | USD | Unemployment Rate | |
Tentative | USD | Treasury Currency Report |