Monday, September 12, 2016

Stellar Jobs Report Leaves September on the Table

The US and it’s central bank will be centre of attention once again on Friday as we get the latest labor market report for August and try to determine what it means for interest rates in the coming months. The US jobs report is always a major economic release for the economy but this one carries additional weight following comments at Jackson Hole last week from a number of Fed officials who suggested we’re on the cusp of the next rate hike. Stanley Fischer, vice Chair, referred to the report directly a week ago when he claimed it will “weigh in our decision”.

Week Ahead Central Banks to Face Tough Questions after Weak US Jobs

USD recovered from the NFP shock but September hike future uncertain The U.S. dollar stumbled on the news that the economy added fewer jobs than expected in August. The U.S. non farm payrolls (NFP) report showed only 151,000 positions versus the forecast of 180,000. Unemployment rate kept steady at 4.9 percent. The American currency was able to recover and finish the week ahead versus major pairs but the disappointing employment report puts a big dent on the chances of a rate hike in September. The U.S. Federal Reserve has been surprisingly hawkish about first the reduction of global risk and second about the pace of growth of the U.S. economy. The speech by Fed Chair Janet Yellen at Jackson hole put the September Federal Open Market Committee (FOMC) rate hike firmly in play, but as I mentioned earlier the next line was “Of course, our decisions always depend on the degree to which incoming data continues to confirm the Committee’s outlook.” The soft jobs report will not derail the Fed’s outlook but could now leave the fate of the next Fed rate hike up to the inflation and retail sales numbers in the middle of September. The central bank calendar for the week of September 5 to 9 will bring into action the Reserve Bank of Australia (RBA) on Tuesday, September 6 at 12:30 am EDT. The Bank of Canada (BoC) on Wednesday, September 7 at 10:00 am EDT and the European Central Bank (ECB) on Thursday, September 8 at 7:45 am EDT. The RBA and the BoC are expected to leave rates unchanged with the only interventions being rhetoric from central bankers. The ECB is faces a bond buying challenge and might replicate the Bank of Japan (BOJ) strategy and purchase stocks, but it is not as straight forward for the central bank headed by Mario Draghi. Updates to the ECB’s forecasts and quantitive easing program are on the table but it is expected the central bank will stick to verbal easing as much as possible.

Asia Trading Post G-20. Central Banks Cross Their Fingers

With the USA and Canada on holiday today, trading in Asia has been subdued as we await Europe and continue to digest Fridays disappointing Non-Farm Payrolls number. The weekend’s G-20 produced a few nice dinners I am sure and more than its usual quota of vacuous statements on world trade, working together, stability and the importance of not indulging in competitive devaluations. It has in all honesty been every man for himself for quite a long time and unsurprisingly the G-20 has had zero impact today. FX and Stocks have moved sideways as we await Europe’s return from the weekend. The lull is unlikely to last long with September facing a packed Central Bank Calendar amongst others.FX and Stocks have moved sideways as we await Europe’s return from the weekend. The lull is unlikely to last long with September facing a packed Central Bank Calendar amongst others.

Market Awaits Next Key Driver

In commodity markets, the focus was on oil. The WTI rose some 5% as a meeting between energy ministers from Russia and Saudi Arabia raised hopes that a production freeze announcement would occur at next month’s OPEC meeting in Algiers. However, when the Saudi oil minister stated there is no explicit agreement and further commented that there is nothing decided on output, with nothing forthcoming, in typical buy the rumour, sell the fact fashion, oil prices plummeted lower. Australian Dollar The Australian Dollar continues to perform well as Aussie dollar bulls have some breathing room as the odds for a September US interest rate lift-off has considerably decreased. Also, the” risk on”appeal from a ” Goldilocks ” type NFP number has underpinned the Aussie, as it has with most commodity-related currencies. We have the RBA later today. While the markets are expecting no change in the Bank’s policy rate, the Aussie dollar remains supported approaching the key .7600 level in the pre-announcement trade as traders are expecting a hawkish rather than a dovish course from the accompanying statement, especially in the wake of the recent run of buoyant domestic economic data.

CANADA: August Labor Force Survey, 2016

Following a decline in July, employment edged up in August (+26,000 or +0.1%). The unemployment rate rose 0.1 percentage points to 7.0%, as more people participated in the labour market. Compared with 12 months earlier, employment increased by 77,000 (+0.4%), with all of the gains in part-time work. Over the same period, the total number of hours worked fell slightly (-0.4%). In August, employment increased among youths aged 15 to 24 and people aged 55 and older. At the same time, employment was down among those aged 25 to 54. Employment rose in Quebec and in Newfoundland and Labrador, while it declined in New Brunswick. There was little change in the other provinces. There were more people working in public administration and fewer people working in professional, scientific and technical services. Public sector employment increased in August, while self-employment fell and the number of private sector employees was little changed. Employment up for youths and people 55 and older In August, employment increased by 22,000 among youths aged 15 to 24. However, the unemployment rate was little changed at 13.2%, as more youths participated in the labour market. On a year-over-year basis, employment for this group was down 48,000 (-1.9%), and their population was also down by 48,000 (-1.1%). For people aged 55 and older, employment rose by 29,000 in August with increases among both men and women. The unemployment rate was unchanged at 6.0%, as more people in this age group participated in the labour market. Compared with 12 months earlier, employment among people aged 55 and older was up by 133,000 (+3.7%), and their population increased by 315,000 (+3.1%). Employment among people aged 25 to 54 decreased by 25,000 in August. Among men, employment edged down, and their unemployment rate increased 0.3 percentage points to 6.6%. For women, employment was little changed, and their unemployment rate was 5.2%. On a year-over-year basis, employment for people aged 25 to 54 was virtually unchanged and their population increased by 51,000 (+0.3%). Provincial summary In Quebec, employment rose by 22,000 in August, and the unemployment rate was little changed at 7.1%, as more people participated in the labour market. Compared with 12 months earlier, employment in the province was up 34,000 (+0.8%). In Newfoundland and Labrador, employment increased by 4,000 in August, and the unemployment rate edged down to 12.3%. Despite the increase in August, there was little employment change on a year-over-year basis. Employment in New Brunswick declined by 3,000 in August, and the unemployment rate was 9.4%. Compared with 12 months earlier, employment in New Brunswick was essentially unchanged. Employment in Ontario was little changed on both a monthly and year-over-year basis. However, in August, the unemployment rate increased 0.3 percentage points to 6.7%, as more people searched for work. In British Columbia, employment was virtually unchanged in August. The unemployment rate was also little changed at 5.5% and remained the lowest among the provinces. On a year-over-year basis, employment in British Columbia increased by 73,000 or 3.1%, the highest growth rate among the provinces. Industry perspective In August, employment in public administration increased by 16,000. Despite an overall increase, there were employment declines among survey interviewers and statistical clerks, an occupational group that corresponds with activities related to the 2016 Census. Compared with 12 months earlier, employment in public administration was virtually unchanged. Employment declined by 23,000 in professional, scientific and technical services. Employment in this industry was little changed on a year-over-year basis. Public sector employment increased by 57,000 in August, offsetting declines observed in July. Compared with 12 months earlier, public sector employment was virtually unchanged. The public sector includes all employees in public administration, most employees in utilities, and some employees in education, health care and social assistance, transportation and warehousing, and other industries. Self-employment fell by 39,000 in August and was little changed on a year-over-year basis. The number of employees in the private sector was little changed compared with the previous month, while it increased by 97,000 (+0.8%) compared with 12 months earlier. Summer employment for students From May to August, the Labour Force Survey collects labour market data about youths aged 15 to 24 who attended school full time in March, and who intend to return full time in the fall. Published data are not seasonally adjusted; therefore, comparisons can only be made on a year-over-year basis. For students aged 15 to 24, the average employment rate for the summer (that is, from May to August) was 48.8%, similar to the rate of 49.1% observed in 2015. The average employment rate for students aged 20 to 24 was 64.9% in the summer of 2016 (compared with 66.0% in 2015); for students 17 to 19 it was 55.1% (compared with 54.5%); and for those aged 15 and 16 it was 24.7% (compared with 25.2%). The average unemployment rate over the summer for students aged 20 to 24 was 10.2%, virtually unchanged from the rate of 10.1% observed for 2015. At the same time, the unemployment rate was 15.3% for those aged 17 to 19 (compared with 17.3% in 2015), and 28.1% for those aged 15 and 16 (compared with 29.7%). Canada–United States comparison Adjusted to the concepts used in the United States, the unemployment rate in Canada was 5.9% in August compared with 4.9% in the United States. On a year-over-year basis, the unemployment rate was essentially unchanged in Canada, while it declined slightly in the United States (-0.2 percentage points). The labour force participation rate in Canada (adjusted to US concepts) was 65.4% in August, compared with 62.8% in the United States. The participation rate in Canada declined 0.4 percentage points over the past 12 months, while it increased slightly in the United States (+0.2 percentage points). In August, the US-adjusted employment rate in Canada stood at 61.5% compared with 59.7% in the United States. On a year-over-year basis, the employment rate declined by 0.4 percentage points in Canada while it increased by 0.3 percentage points in the United States.