US jobs market kicks tapering thoughts to March
- 148,000 jobs added continues trend of declining acceleration
- EURUSD hits near 2yr high as investors swarm from USD
- Japanese yen bid as China rate markets tighten.
Payrolls Tuesday has passed and I would think that a quick straw poll of those who were taking part in the analysis, presentation, interpretation or trading thereof will be glad for it to return to its natural home on a Friday afternoon. One possible reason for that is that it is maybe easier to deal with disappointment before a weekend than with three days left of a working week. Yesterday’s number was one of these disappointments.
The US only managed to add 148,000 jobs in the month of September, much lower than the 180,000 the market had expected, and in one fell swoop justified the Fed’s decision to hold off on reducing its stimulus into the US economy. It also increased the fears around the damage that the shutdown and debt ceiling battle had caused to the US economy; if the jobs market was this bad before the shutdown, how bad will it be afterward? There is no way to tell now but I would not be surprised if October’s number sees some at the bearish end of estimates looking for growth sub-100k.
Although we saw the unemployment level once again fall – 7.2% in September versus 7.3% in August – we believe that this remains a function of the recent fall in the participation rate, a number that fell to a 35yr low in August and remained there in September.
USD got smacked hard once again after the number as analysts across the spectrum of asset classes moved their estimations of when the Fed would begin a normalisation of its monetary policy further into the future. March of next year is now the most popular month for a decision on tapering it seems – a decision that took the dollar index to its lowest level this year.
EURUSD has managed to gain more on this news than GBPUSD given the tighter monetary policy of the ECB than that of the BOE. The belief that political risks in the Eurozone are not near-term concerns has also increased the attraction of the single currency as a port from the US political maelstrom. GBPEUR has broken lower, to a 7 week low, on the imbalance as a result.
GBP was helped yesterday as we received news from the UK in the form of public finance data. The UK’s budget deficit in September came in at £11.1bn, a lot better than the £11.3bn the market had expected. Government revenue was 7% higher in the month with spending up 2.5% on higher VAT from spending and stamp duty from housing market expansion. The UK is still a consumer economy after all, and has been since Napoleon called it ‘a nation of shopkeepers’.
Today’s Bank of England minutes may see the central bank lean further on those in the market who believe that rates will rise here in the UK sooner rather than later. We anticipate that there will be little difference between these minutes and the ones published last month.
Japanese yen is stronger this morning following falls overnight on Asian stock markets. Blame is being apportioned to news from the Chinese interbank lending markets that are once again showing signs of tensions. China’s 7-day repo rate rose by 57bps to over 4% this morning amid fears that the central bank is trying to remove excess liquidity in a bid to prevent bubbles in lending markets.