Later this week, we get the most important US employment report, since the last one. Yes this is what life has come to, as the continued prevarication of the US Federal Reserve continues to sow uncertainty as to when they intend to pull the trigger on an interest rate rise.
For most of this year the US central bank has been at pains to assure the market that rates will begin to rise this year, with June touted as the first potential trigger point. This then got pushed out to September as uncertainty about the global economy clouded sentiment.
When September came and went December became the most likely candidate before a series of disappointing US economic reports prompted investors to push back that prospect as well.
US policymakers on the other hand had other ideas last week, as having promised a rate rise for most of this year they wanted to keep alive the prospect that a rise in December could still happen, despite a series of slowly deteriorating economic reports.
Last week’s monetary policy
statement showed that the Federal Reserve believed that the US economy was growing at a moderate pace, and that they expected the labour market to improve further, and inflation to return to the mandated 2% level over the medium term, due to the transitory effect of declining energy prices.
This unexpectedly bullish view on the US economy came as a surprise given the recent softness being seen in the most recent economic data, and once again puts the focus back on not only the latest monthly jobs report which has seen the last four payrolls reports miss expectations to the downside, but also on the inflation numbers which have continued to decline.
This divergence between the most recent economic data and the Fed’s view on the US economy has only served to deepen the uncertainty investors have about how the US central bank is seeing the US economy.
The last time the US jobs report saw a number beat expectations, was back in June when the May numbers posted a rise of 280k, subsequently revised down to 260k.
Since then we've the last four payroll reports fail to meet expectations. More recently in August and September we've seen the payrolls come in below 200k for two months in a row, the first time that has happened since April this year, when the US was coming out of a rather cold winter period.
This week’s October report really needs to show a significant improvement on the previous two months to keep maintain the probability that we might see the Fed implement a modest December rate rise.
Expectations are for a number in the region of 180k, up from the 142k seen in September and the 136k seen in August.
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