7th Consecutive Year of Weak August Labour Report; EUR/USD Holds Firm on ECB Disappointment
The US created 156,000 jobs in August, lower than the 180,000 that analysts had been expecting. The unemployment rate increased by 0.1% to 4.4% and average wage growth increased by just 0.1% less than the 0.2% expected meaning that on an annual basis wage growth remains at 2.5%. But that’s not all. The June report was revised lower by 21,000 jobs and last month’s report was also revised lower by 20,000, taking July’s figure to 189,000. This calculates to a loss of 41,000 jobs since June.
This report could be seen to be interrupting narrative of the US jobs market going from strength to strength. The market is disappointed by these figures but stepping back it is not actually a bad report, perhaps a more normal report. The last five months (prior to revisions) had seen over 200,000 jobs being created each month, the sustainability of such numbers was questionable. Also, it is worth pointing out that August tends to be a softer month for job creation, this is now the seventh straight year that numbers in August have disappointed, so there is a good chance that we could see a pick up again in the number of jobs created in September.
How is report impacting on interest rate expectations?
Overall this is being viewed as a disappointing report. The number of jobs created was significantly lower than expected but also wages barely inched higher on a monthly basis and remained stuck at 2.5% on an annual basis. The lacklustre wage growth is not supporting inflation expectations so the odds of an interest rate rise have actually fallen which is pulling on the dollar. The market expectation for another interest rate hike this year had been around 40% heading into the NFP. The probability now sits at just 33% with rate hike expectations not hitting 50% until June next year.
Market in tug of war with euro news
The market reaction to this jobs report can’t be taken in isolation. Shortly after the NFP release, the European Central Bank pushed back expectations of the tapering of its current bond buying programme until December, from September, which has resulted in a tug of war between the euro and the dollar. Following the NFP report the dollar weakened sending the EUR/USD surging by 0.5%. However, the spike was short lived as investors expressed their disappointment of the ECB decision to push back expectations for tapering. The EUR/USD is currently finding resistance at $1.1900 with euro weakness dominating as we head towards the weekend.
On the equities front, the US index futures were trading higher going into the NFP reading by 0.2%. This has been sustained following the release. Generally speaking the correlation between US equity market movements and the NFP tend to be limited with treasury yields and the dollar producing the largest correlations.
Look ahead
Next week several Federal Reserve speakers are lined up to hit the airwaves, so dollar traders will now be looking ahead to the commentary from the Fed to ascertain how the central bank intends to handle an economy growing at 3%, but a jobs market which could be very close to full employment.