John M. Bland
Surprisingly Weak September Jobs Data
Almost everyone was blindsided by the weak September Jobs report released on Friday, which saw employment increase only +142,000, when a rise of about +200,000 had been expected. Furthermore, the August figure was revised down to +136,000 after an initial reading of +173,000. An upward revision to the August data had been widely expected. On top of this, the average number of hours worked per week fell while average hourly earnings (AHE) fell by a fraction when a gain of 0.2% had been predicted. AHE is a metric said to be closely followed by the Fed with its inflation targeting. This critical data release suddenly called into question expectations for a Fed rate hike this year. In my opinion, an October rate hike is now off the table, and a December lift-off is now in doubt, barring a miraculous recovery in the data before then.
Forex Market Developments
The September Employment report was a game changer for the financial markets, as it changed basic expectations for Fed policy. Markets universally had priced in an early Fed rate hike later this month or in December. Many worry now if the Fed lift-off might be delayed indefinitely. That depends on future data. As for the markets, equities fell sharply on the news, and bond priced rose (yields fell). The EURUSD gained as institutional equity sellers bought EURUSD to unwind the financing leg of their carry trades. However a sharp turnaround in equities saw stocks close higher arnd recover some of the kneejerk reaction to the employment report. A similar response was seen in the JPY.
The upcoming week is an active period for major economic data.
-- Sunday October 4, AU/NZ- Clocks advance one hour.
-- Monday October 5, CN- Holiday, Global- Final Services PMIs, EZ- Retail Sales.
-- Tuesday October 6, CN- Holiday, AU- Reserve Bank of Australia, Trade, CH- CPI, CA/US- Trade, CA- Ivey PMI, 3-yr Auction.
-- Wednesday October 7, CN- Holiday, GB- Industrial/Manufacturing Output, Weekly Crude, 10-yr Auction.
-- Thursday October 8, DE- Trade, GB- BOE Decision, US- Weekly Jobless, 30-yr Auction, Fed Minutes.
-- Friday October 9, GB- Trade, CA- Employment.