The headline number is 20% below the previous 3-month average of 200,00 jobs created and the February and March figures were revised down by 19,000 jobs. While the NFP number is discouragingly below expectation of 202,000, average hourly earnings has risen by 2.5% over the year. While encouraging, hourly earnings alone will not provide enough ammunition for the FED to raise rates come June. External factors such as the slowing growth in China, Japan, Europe, and US will mix with negative interest rates to halt any hopes of increases in inflation. This toxic combination of low growth and stagnant inflation will create the next bout of volatility in equity, rates, and FX.
- Revisions to June and July NFP figures of +44,000 brings the 3 month average gain to +221,000
- Average hourly earnings are up 0.56% since June and up 2.2% from August 2014
- August NFP of +173,000 is 30% below the 12 month average gain of +247,000
Looking through the lens of the FED, there are positives and negatives about today’s NFP release. On the face of it, a sub-200k number is a slight cause for concern, as the bobble heads will stoke a return Read more
The Swiss National Bank (SNB) has abandoned its policy of maintaining a minimum exchange rater versus the Euro at 1.2000 earlier today and has thrown the FX market into a tailspin with losses that will further erode investors appetite for risk. While the SNB can justify their actions with a belief that the CHF is no longer overvalued due to the US dollar rally, the real reason is that to maintain this policy in the face of ECB quantitative easing would undoubtedly pit two central banks against one another and possibly cancel each other out. The SNB had little choice but to cut the cheese and run for the Alps!
Mario Draghi, ECB President, spoke Friday at the Euro Banking Congress in Frankfurt and stated that the bank is ready to “step up the pressure” and expand its stimulus program if inflation does not show signs of quickly returning to the bank’s target. Do not take for granted that when the ECB President speaks, he means it.
Mr. Draghi stated that “If on its current trajectory our policy is not effective enough to achieve this, or further risks to the inflation outlook materialize, we would step up the pressure and broaden even more the channels through which we intervene, by altering accordingly the size, pace and composition of our purchases”.
Friday’s release of the September labor departments non-farm payrolls increase of 248,000 and a drop from 6.1% to 5.9% in the unemployment rate will certainly put the wind back in the sails of US dollar bulls. Strength in the labor market will provide the FED with the confidence to guide US interest rate expectations higher as well as sooner, while the ECB and BOJ ease conditions on their struggling economies. Dollar strength in developed markets, known as G10 currencies, is broad based and gaining momentum as a result.