Morning Commentary: U.S. Jobs Report – A Mixed Bag

Foreign Exchange - Morning Commentary
U.S. Jobs Report – A Mixed Bag
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Alan Rose
Alan Rose
Foreign Exchange Senior Trader
Over the last weeks and months, there have been clear signs that the U.S. economy is slowing. There is almost universal consensus that much of the recent weakness in the U.S. economy is related to the trade war and the contagion of a global slowdown impacting demand within our economy. Today’s U.S. jobs report reflects much of that recent slowdown, but there is also good news within this report.

The headline NFP number missed as only 130,000 jobs were created against expectations of 160,000, and there were slight downward revisions to the two previous months totaling 20,000. Excluding government hiring, private payrolls grew by just 96,000 which is the slowest pace since February. The three-month average of job creation reflects the slowing of the U.S. economy as the current three-month average is now 156,000; the monthly average in 2018 was nearly 223,000.

That is the bad news in the report. The good news is that the UR remained at 3.7% and remains near a 50-year low. The labor force participation rate rose again to 63.2% from 63.0% and has been on a steady rise since the low of 62.8% in April. Average hourly earnings (AHE) rose again and beat expectations rising by 0.4% keeping the YoY rate at 3.2%.

Market priorities and positions are constantly shifting, and market psychology is always insightful as to what investors deem as important.  While the knee-jerk reaction to the headline misses in the jobs report saw lower U.S. interest rates, they are still fractionally higher on the day and up for the third day in a row.

While the bond market still anticipates the Fed to cut rates by 25 bps on September 18, a 50 bp cut has been largely ruled out at this time, and market positions are adjusting accordingly. Chairman Powell will be speaking later this morning and markets will be listening closely to his communications concerning the current state of the U.S. economy and implications for Fed monetary policy.
  • The central bank of China (PBOC) cut reserve ratios for all commercial banks by 0.5%. This cut was widely anticipated and was greeted with a positive reaction in the markets. Asian equities are all in positive territory, and the Chinese yuan is higher again today and is up for the fourth day in a row. In other related news, Fitch cut Hong Kong’s sovereign rating to AA with a negative outlook.
  • Canada reported a very strong August jobs report and fits a recent pattern of steady and firm economic data allowing the Bank of Canada to follow a “steady as she goes” path avoiding the need to cut interest rates. Canada created 81,100 jobs in August which is four times more than expected. Both full-time and part-time jobs saw gains. The UR remained at 5.7% and the labor participation rate rose from 65.6% to 65.8%. Canadian interest rates are up on the day as is the Canadian dollar.
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