US stocks rose on Friday as analysts downplayed a weaker-than-expected jobs data while easing tensions in Ukraine soothed investor sentiment. The S&P500 rose 0.5% to a fresh record while the Dow gained 0.4% to erase a weekly loss. On Friday, data from the Bureau of Labor Statistics showed the economy adding 142k jobs in the month of August for the slowest pace of job growth in eight months.

Jobless rate

The jobless rate on the other hand fell to 6.1%, which should be encouraging, except for the fact that it was due to a participation rate that has fallen to its lowest levels since 1978. That said, analysts have mostly downplayed the significance of the disappointing figures. The preceding six jobs report hovered above the 200k mark and the data is largely susceptible to revisions therefore a one-off disappointment during summer does not necessarily derail a consistent pick up in the labour market. The latest jobs report may also have altered investors’ expectations for the Fed meeting in September. Previously investors expected the central bank to reveal finer details as to the timing of a first interest rate hike, as we inch towards the end of the asset purchase programme in October. With the latest disappointment in the jobs market, the Fed may just hold back for another month before it details the necessary recipe for a rate hike. Looking at the data in August, consumer confidence hit a seven-year high while manufacturing activity advanced to a three-year high. Both new and existing home sales are on a steady rise, while the services sector - which makes up the majority of the economy - saw the fastest pace of activity since before the GFC.

Rate hike likely

Having considered all these factors, we think the Fed is still on track to consider hiking the rate in the first half of the year. The dollar was mostly sold down against the majors due to the weaker-than-expected jobs data. Considering how much it has risen in recent weeks, the selloff was modest, with USD/JPY closing above 105 over the weekend. Earlier this morning, Japan announced a sharper-than-forecast 7.1% drop in its annualised second quarter. The contraction is the worst since Q1 of 2011, when Japan was hit by the terrible earthquake and tsunami. While the BOJ seemed optimistic about the economy’s resiliency - as seen in the BOJ statement last week - there are obvious signs that the Japanese economy is suffering from a loss of momentum, which may spur further monetary easing. Considering the divergent policies that the Japanese Central Bank and the Fed are undertaking, we may continue to see a slide in the yen versus the dollar.

Apple and Alibaba

Looking ahead, we see a rather muted week of data, with markets likely to take direction from geopolitical factors like the ceasefire in Ukraine at the forefront. Some other key events to look out for include the launch of the iPhone 6 and a new category of wearables, and developments out of Alibaba’s IPO, which is primed to raise $21bn.

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