Traders hoping the US would be able to fly above economic weakness and turmoil in other parts in the world were hit with a big bucket of cold water this morning. Not only did US nonfarm payrolls come in way below expectations, private payrolls were even worse and the previous month for both were revised way down. This suggests a weakening US job market.
This news also confirms suspicions in the market that the Fed’s decision to hold off on raising interest rates last month was a sign of trouble. Today’s news makes it pretty difficult for the Fed to raise rates in October now unless there is a big turnaround in other data. If you take the 37K downward revision off the 142K nonfarm payrolls, you get 105K, if you take the 40K downward revision off the 118K private payrolls you get 78K and I had suggested prior to the meeting it would take a number below 100K to knock the Fed off course.
Later today, FOMC Vice Chair Fischer is speaking, we’ll see if today’s report has changed his tune or not.
Markets haven’t waited for his speech to take a very dovish and negative read on this news. US indices have plunged on the news, which has increased the potential for a retest of the August lows for US indices in the coming month, just as the Hang Seng, Nikkei and Dax
have done already.
USD, which has been pricing in higher US interest rates for months now is also taking it on the chin today. With the possibility interest rate liftoff could be delayed again, and the likelihood of a one and done scenario rather than a campaign of hikes, the big USD rally of late 2014 and early 2015 looks overdone setting up the potential for a big correction. Gold is soaring today in response to that prospect along with CHF, EUR, and NOK with JPY, GBP and CAD posting moderate gains as well.
There have been no major corporate announcement this morning.
Significant announcements released overnight include:
US nonfarm payrolls 142K vs street 201K, previous rev down to 136K from 173K
US private payrolls 118K vs street 197K previous rev down to 100K from 140K
US unemployment rate 5.1% as expected
US hourly earnings 2.2% vs street 2.4%
UK construction PMI 59.9 vs street 57.5
Upcoming significant announcements include:
10:00 am EDT US factory orders street (1.2%)
12:30 am EDT FOMC Bullard speaking
1:00 pm EDT US Baker Hughes drill rig count previous 838
1:30 pm EDT FOMC Vice Chair Fischer speaking
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