Good morning,
Just enough jobs to keep September alive
Friday’s jobs report from the US was wetter than the weather us Londoners are waking up to this Monday morning. Only 151,000 were added through August in the United States with the unemployment rate remaining at 4.9%, pay growth worsening and average hours also slipping.
My immediate reaction was that this was a bad enough report to limit the Federal Reserve from hiking rates in September but calendar effects in August can make headline numbers rather misleading and rises in wages towards 2.7/2.8% by the end of the year are still very much on track with 151,000 above what the Federal Reserve estimates is enough to keep unemployment stable.
Dollar trying to stay solid
The chances of a hike in September have remained resolutely above 30% in the aftermath and while markets therefore assign a little less than a 1/3rd chance to a 25bps increase in interest rates, I think that the decision will be a little closer than that.
Dollar has remained supported following the report after an initial sell-off but has not been able to make any gains off its recent lows. With payrolls now out of the way we have more marginal data to focus on such as tomorrow’s services ISM number.
Services up next for UK watchers
The most focused upon services PMI number will not be the US’s however but the one from the UK at 09.30. Both the manufacturing and construction PMI numbers from the UK last week showed a rebound from their post-Brexit lows however the services industry is worth 3 times those industries at current levels and therefore represents the most valuable indicator of month-to-month spending in the economy.
Forecasts of PMIs are difficult at the best of times and we are nowhere near the best of times so placing any value on the consensus estimate of a rebound to 50.0 is rather foolhardy. As with the manufacturing number on Thursday we will be focusing on price levels and the impact of the devaluation of the pound as well as employment and pay.
As per usual the UK’s number will follow a run of releases from the continent with Italy’s number due at 08.45, France at 08.50, Germany at 08.55, and the Eurozone wide measure at 09.00.
Politics back in the limelight
The G20 meeting over the weekend has done little but emphasise that the status quo remains at risk from the rise of populist politics via Brexit, Trump or the AfD in Germany. Theresa May is all over the front pages of the UK papers this morning following her statements to press over the weekend that she cannot guarantee Brexit pledges.
A statement from the Japanese government on the possible withdrawal of Japanese investment from a post-Brexit Britain will ensure that the economic impact of Brexit cannot be partially, let alone fully, measured until we gain an insight into business investment levels.
The UK parliament is back from recess today and BOE Members Carney, Cunliffe, Forbes, McCafferty will testify to the Treasury Select Committee on Wednesday following the August Inflation Report and the Bank of England’s decision to cut interest rates to record lows and expand its quantitative easing and lending operations.
Politics in Germany is getting a fair bit of press this morning following the Alternative für Deutschland party’s win in local elections in here home state. While the impact globally from a German local election is slight we may see an increase in risk premiums wanted on European assets ahead of similar elections from France, Germany, Italy and Holland in the coming 12 months.
The US is closed today for Labor Day.
Have a great day.