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Global: risk found empowerment in US jobs report


Last Friday, US nonfarm payroll employment figures were released, showing an increase of 169k in August, just short of expectations of a 180k rise. The previous two months were revised down 74k. The BLS noted that 34k workers in non-agricultural jobs were unable to work due to inclement weather. Manufacturing jobs rose 14k, with service sector jobs up 134k, of which transport and retail trade accounted for a large part of the gains. The unemployment rate slipped to 7.3% from 7.4%, though the labour participation rate is at its lowest since 1978. Hourly earnings rose 2.2% YoY, up a little from 2.0%, but in real terms is static given that CPI inflation is at 2.0%. Overall, private hours worked picked up marginally to 34.5 from 34.4. The jobs report does not conclusively settle the timing of what the Fed decides to do with its QE programme. The US 10-year Treasury yield had not, surprisingly, retreated from the 3.00% level prior to the release of the report. Consequently, the equity market closed slightly in black and commodities firmed as well.

Nevertheless, this is not a ‘bad’ report. The market is still undecided about the timing and extent of Fed ‘tapering,’ though any move at the 17-18 September FOMC meeting is likely to a be what you might call a ‘dovish’ taper i.e. a reduction in Treasury purchases of USD10bn, no change in purchases of mortgage-backed securities and ‘dovish’ forward guidance on interest rates. However, the Syrian situation and an absence of consensus on military intervention amongst G20 Leaders, and newsflow on the Congressional vote is likely to overhang financial markets in the interim. Key events this week are President Obama’s speech on Tuesday evening and an expected Senate vote on Wednesday. The main economic data focus this week will be updates on Chinese industrial production and retail sales and at the end of the week, updates out of the US for retail sales and the Michigan consumer sentiment survey.

Maxim Korovin, Anton Nikitin
VTB Capital analyst


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