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US August non-farm payrolls +151K vs +180K expected
Highlights of the August US non-farm payrolls report:
US July factory orders +1.9% vs +2.0% expected
Factory orders and durable goods orders revisions
Here were the initial release details of the durable goods orders.
Revisions:
All these numbers are very close to estimates. The factory orders side is a shade soft but it won't be enough to get the market moving. Overall, it confirms that July was a better month for factories after months of struggles.
source
Markit US services index released early
Markit services PMI was scheduled for next week
The final revision to the Markit August services PMI was 51.0 compared to 50.9.
A year ago the index was at 56.1 in a sign that the US economy might not be as strong as the Fed believes.U.S. Dollar Weekly Outlook September 5-September 9
The U.S. dollar (DXY) remains in a short term uptrend dating from the August low despite a late-week hiccup in response to weaker-than-expected economic data. On Thursday, ISM manufacturing missed estimates, coming in at 49.4 versus a forecast of 52 and a previous reading of 52.6 in July. The slip back into contraction mode with a reading below 50 is perceived as a negative for third quarter GDP growth prospects and left the prospects for a U.S. rate hike in question. Then on Friday, U.S. nonfarm payrolls came in softer-than-expected at +151K, versus a consensus estimate 180K. While the dollar initially plunged on the jobs news, resulting in a decline to a new low for the week in the basket of currencies, the greenback showed resilience, bouncing back and ending Friday’s session with a quarter percent gain. For the week overall, DXY was up 0.42%.
The prospects for an interest rate hike later this month declined as a result of the jobs numbers. According to Fed Funds futures, the market is now pricing in a lower chance of a hike in Sept. (about 21% versus 34% on Thursday) while the contract is pricing in a 55% chance of a hike in December versus a 59% likelihood on Thursday. A rate rise in the U.S. would be supportive to the dollar, likely resulting in a resumption of DXY’s climb since bottoming in early May. As a result of the dollar’s decline after peaking in July, DXY broke below the lower boundary of the rising trend channel dating to the May low. However, this lower channel line is now back in play as resistance as a result of the dollar’s recent recovery, which was sparked by hawkish comments out of Federal Reserve officials on August 26th. A break back above this lower channel line would void the negative implications of the breakdown and call for further appreciation in the dollar in the weeks ahead, with the target becoming the July peak at the 97.50 level.
Ahead of this high, however there is additional resistance to overcome, the first being last week’s high at 96.26, which is reinforced by the falling 200-day moving average. A move above this level has the potential to elicit more strength, resulting in quick follow through to the next resistance at 96.50, tested in early August.
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USD: Jobs Data Leaves a September FOMC Rate Hike in Balance
We argued last week in explaining our reasons for bringing forward the timing of the next Fed rate hike from December to September that all that was required was for the flow of economic data to be broadly consistent with an improving jobs market and growth remaining consistent with continued progress toward price stability. The key test was always going to be last Friday’s jobs report and the data has, perhaps just about, kept September alive as a possibility for a rate increase. The DXY index advanced marginally on Friday but has today reversed that marginal gain while the 2-year UST bond yield is about unchanged. That says it all really with market participants no better enlightened over the timing of the next move from the Fed.
While key elements of Friday’s report were weaker than expected, taking the jobs data on a three-month or longer perspective is consistent with a jobs market that continues to improve. The NFP average year-to-date is now 182k while the 3-month average stands at 232k. The average earnings print was a little weaker but the annual rate is trending higher despite the slowdown in annual earnings growth from 2.7% to 2.4%. Year-to-date earnings are up 2.5% on average compared to 2.2% over the same period last year. Yes, hours worked dropped but all other data is pointing to a pick-up in real GDP growth suggesting productivity has improved. The key problem now hindering a rate increase in September is not the data as such but the fact that the financial markets remain well off pricing in a move. The Sept fed funds futures contract is indicating about a 25% probability of a move this month, roughly unchanged over the last few days. The jobs data was supposed to have been the key data that might have pushed the market to pricing a move.
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USD Direction & The Fed's Effort To Get Out
Despite the Fed having effectively told us that they will hike this year again, the USD has not been able to rally by much and market positioning is well below last year's levels.
The EUR cannot weaken by much, as the ECB has reached its self-imposed QE constraints and Draghi has to fight relaxing them one-by one. The JPY cannot weaken without a BoJ endorsement of fiscal stimulus in the absence of a long-term fiscal consolidation plan, in our opinion. GBP is actually strengthening, as the market was too short and the data has surprised to the upside. And EM FX still finds support from the Fed's policy put.
If the Fed does not hike ahead of the elections, December is the only real option, but lots of things can happen until then. A number of times this year the Fed thought that the road was clear for the next hike, but unexpected shocks kept it on hold.
We still expect the Fed to hike faster than markets are pricing (Dec this year and two more next year), which would support the USD, but do not expect a sharp USD move higher.
August ISM non-manufacturing index 51.4 vs 55.0 expected
US MBA Mortgage Applications Rise 0.9%
The latest Mortgage Bankers Association (MBA) data recorded a seasonally-adjusted 0.9% increase in applications for the latest week ending September 2nd. This followed a 2.8% gain the previous week with the annual increase at 28%.
Applications to re-finance homes rose 1.0% on the week with the year-on-year increase at 43%. Applications to purchase a home also rose 1.0% on the week with a solid 7.0% annual gain as overall demand held firm.
The average benchmark 30-year fixed-rate mortgage rate increased slightly to 3.68% in the latest week from 3.67% previously. Rates remain very close to the lowest level for three years and longer-dated bond yields have moved lower again this week following a slightly weaker than expected US employment report on Friday and much weaker than expected ISM non-manufacturing survey on Tuesday. Despite lower bond yields, mortgage rates have been slow to respond, increasing speculation over a potential market bottom, which is liable to spur refinance activity.
There will also be concerns that any significant increase in interest rates could trigger a sharp decline in re-finance applications, especially at the lower end of the market and there will be high uncertainty ahead of the Federal Reserve meeting later this month.
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US July JOLTS job openings 5871K vs 5630K expected
JOLTs numbers from the Federal Reserve Bank
The weekly US initial jobless claims 259K vs. 265K estimate
4-week MA 261.25K vs 263K last week