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US Economy Fails to Create Enough Jobs for Fed to Pull the Rate-Hike Trigger
The total number of new jobs created in the US economy during August rose below expectations, giving the Federal Reserve's (Fed) policymakers pause for thought on further monetary policy tightening.
US companies added 151,000 new jobs in August, significantly down from market consensus of 186,000, and markedly lower than the upwardly revised 275,000 snatched in July, the US Labor Department said on Friday.
"The Fed needed a barnburner payrolls report to hike as early as September, and today's data didn't measure up to that task,"CIBC World Market's Avery Shenfeld said after the labor data were made public.
Over the last three months, payrolls gains have averaged 232,000, compared with 182,000 for the first eight months of 2016, suggesting forward momentum recently.
Average hourly earnings rose 0.1% vs 0.3% in July. The average workweek fell to 34.3 hours in August from 34.4 in July, pushing aggregate weekly hours down by 0.2%.
Within payrolls, strong positives come from retail, healthcare, leisure, and government sectors that offset weakness in construction and manufacturing, the August labor market report also said.
On Wednesday this week, a private survey from ADP showed the number of new jobs increased by 177,000 in August, pretty much matching the forecast of 175,000.
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Eurozone Markit services PMI Aug final 5 Sept
From Markit:
Full Markit report here
German Factory Orders Rise in July
For June 2016, revision of the preliminary outcome resulted in a decrease of 0.3% compared with May 2016 (primary –0.4%).
Price-adjusted new orders without major orders in manufacturing had decreased in July 2016 a seasonally and working-day adjusted 1.3% on June 2016.
In July 2016, domestic orders decreased by 3.0%, while foreign orders increased by 2.5% on the previous month.
New orders from the euro area were up 5.9% on the ... (full story)Reaction to the ISM non-manufacturing survey
Weak services sector report raises concerns
The ISM non-manufacturing survey hit a six-year low.
Capital Economics
They said the survey "should all but rule out any possibility of a September rate hike." Combined with the soft ISM manufacturing data, the numbers suggest GDP growth running only around 0.5% annualized.
"Even if this simply introduces some uncertainty about whether GDP growth really is undergoing a rebound, that should be enough to persuade Fed officials that it would make more sense to delay a rate hike until after the third-quarter GDP figures are released in late October," economist Paul Ashworth wrote.
CIBC
Economists at CIBC say "this adds to the chorus of data releases for August that continue to suggest that the Fed will pass on a September rate hike and will need to wait until December before having enough evidence to tighten policy."
Moody's
"There's no good news in this report, but it is just one month," said Ryan Sweet, a senior economist. "September's going to be very important -- if the weakness persists, then that would raise some concern about the health of the non-manufacturing segment of the economy."
Amherst Pierpont
"I'm not terribly worried about the fate of the economy, but I do feel even more comfortable today than I did a week ago calling for no Fed move in September," said Stephen Stanley, chief economist.
FTN Financial
"For a data-dependent Fed, it may be difficult to raise rates in September after all," said Chris Low, chief economist.
HFE
"The sudden change looks at odds with the strength being signaled by jobless claims and there is no clear explanation in the text of the reports, but the data will only help the case of those at the Fed arguing for holding off on tightening pending more clarity."
source
Eurozone July trade balance SA +EUR 20.0 bln vs +22.0bln exp
Eurozone July trade balance report 18 Sept
Eurozone Q2 Hourly Labour Cost Growth Slows To 1.0%
Eurozone hourly wage costs rose 1.0% in the year to second quarter of 2016, a significant slowdown from the 1.6% recorded for the first quarter. The second-quarter data equalled the series low seen during 2013 and will reinforce ECB concerns surrounding second-round inflation effects.
There was a significant slowdown in the wages and salaries per hour component to 0.9% from 1.7% previously, while the non-wage component increased slightly to 1.4% from 1.5% previously.
Labour costs rose 0.9% in industry, 1.5% in construction and 0.9% in services.
There were annual declines for Italy, Finland and Luxembourg according to the latest data with the Italian data particularly worrying given the underlying deflationary fears surrounding the Italian economy. There will be some relief that costs were in positive territory for France, although there was still a slowdown to 1.4% from 2.0% previously.
Annual increases were also below 1.0% in Spain, Belgium, the Netherlands and Ireland with weak readings in the core Eurozone economies.
The ECB remains extremely uneasy over the risks of second-round deflationary effects with persistently low headline inflation putting downward pressure on wages, thereby increasing the risk of a deflationary spiral.
How a ‘twist’ by the Bank of Japan could upstage the Fed
The Bank of Japan could end up stealing Janet Yellen’s thunder on Wednesday.
While shifting expectations for the two-day meeting of Federal Reserve’s rate-setting Open Market Committee that ends on Sept. 21 has remained the primary driver for U.S. financial markets, it’s the news that will come out of Tokyo a few hours earlier that could be equally, if not more, important to asset prices next week.
Financial markets are in a “dangerous place” right now, “jammed between the BOJ and the FOMC,” said Ward McCarthy, chief financial economist at Jefferies, in a Friday note.
Ever-shifting expectations of the timing of a Fed rate increase are driving yields at the short end of the global bond market, he said, while the long end is being driven by expectations about the Bank of Japan and prospects for global quantitative easing measures — the extra credit market juice from bond-buying that major economies have employed during the slowly mending years since the Great Recession.
A sharp drop in prices of longer-dated bonds, which pushed yields higher on Sept. 9, was blamed in part for a sharp selloff in stocks SPX, -0.38% that same day. The global bond selloff was blamed largely on fears the European Central Bank and the Bank of Japan will eventually run out of bonds to buy.
A similar dynamic was at work on Sept. 13, feeding investor worries that a sharp rise in long-dated bond yields could be the catalyst for near-term losses in stocks.
While stocks usually gain when bond yields rise, that relationship has broken down in recent weeks.
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German economy is slowing in Q3 says Bundesbank
Latest monthly report from Buba
August German PPI Falls 0.1%, First Decline In 6 Months
German producer prices declined by 0.1% in August following a 0.2% the previous month and was weaker than the expected monthly increase of 0.1%. The decline broke a run of four successive monthly increases and was the first decline in prices since the February data released in March.
The year-on-year decline still slowed to 1.6% from 2.0% previously reflecting the large decline in prices seen for August 2015.
Energy prices declined 0.4% over the month for a 5.5% annual decline. Excluding energy, prices were unchanged for the month with a 0.3% annual fall.
The price of intermediate goods fell 0.1% on the month, but there were small increases for capital and consumer goods with annual inflation rates of 0.6% and 0.7% respectively.
Producer prices fell consistently in the period from September 2015 to February 2016 with a cumulative decline of over 2.5%. Unchanged prices over the next six month would push the annual rate into positive territory and potentially help to raise inflation expectations.
Nevertheless, there will still be concerns that the rate of deflation is easing only very slowly despite the very expansionary monetary policy. There has also been sustained weakness in the PMI price indices and the latest data will be watched closely in the September PMI data due for release on Friday. Further declines will reinforce ECB’s concerns surrounding potential second-round effects.
There was no significant reaction to the data in currency markets, while German bunds opened higher by over 10 ticks following losses seen on Monday.
source
PBOC sets yuan reference rate for today at 6.6738(vs. yesterday at 6.6595)
The bank to inject 80 bn yuan through 28 day reverse repos and 120bn yuan through 7-dayers