Non-farm payrolls undershot expectations with a 151,000 print for August. But the fact that August payrolls are serial under performers means traders are no clearer whether the Fed will or won’t be raising rates at this month’s FOMC meeting.
In the end, the uncertainty didn’t hurt stocks which rallied into the close before today’s Labor Day holiday in the US. That helped SPI 200 traders recoup most of Friday’s 42-point loss on the ASX 200 with September futures up 35 points.
The Aussie dollar is a little higher at 0.7569 this morning but off its Friday high around 0.7615 after the US dollar regained some strength following the initial post-non farm payrolls dip.
Gold is higher and oil recovered almost 3%.
Here’s the scoreboard (7.28am):
- Dow: 18419 +18 (+0.1%%)
- S&P 500: 2171 0 (0%)
- SPI 200 Futures (September): 5,394, -12 (-0.2%)
- AUDUSD: 0.7548 +0.0031 (+0.41%)
The top stories
1. US non-farms missed – but is a predictable miss not really a miss? One of the mastheads today suggests that Friday’s non-farm payrolls “all but ruled out a September rate hike”. Give me a break. The data missed pundits expectations but maybe pundits just can’t forecast. This brings the run of misses to 4 in a row now with the data undershooting and overshooting by a wide margin during this time. So is the data wrong or are pundits rubbish forecasters?
Anyway, abstract the fascination with any one month’s data and you get a picture of a US economy still creating a healthy number of jobs. I’ll get to why the Fed could still hike in item 2 but the point is even though Friday’s non-farm payrolls failed to provide clarity around the FOMC meeting’s decision with a 151,000 print for August, that undershoot is consistent with the fact that August does undershoot expectations more often than not. So the weaker than expected number was not actually unexpected.
That’s a point Dow Jones newswires made in their wrap of Friday’s trade. “Some traders said they aren’t taking the fewer-than-expected jobs gains at face value, and instead they are discounting them in order to take into account the so-called August curse. Historically, the August jobs report has been a seasonally weak and volatile one and it is often revised substantially higher,” Dow said.
Messy. But the Fed is still on the table for September.
2. Here’s why we know the Fed could still hike rates in September. Leaving aside the fact forecasters can’t forecast for a minute, maybe we should all just listen to the Fed’s words. On Friday we had a warning from Richmond Fed president Jeffrey Lacker that even though he “hasn’t made up” his mind about September (non-voter though) he is worried about the impact of a delay now on future policy action (consistent with Loretta Mester twice last week). BUT more pointedly Lacker said “we have to consider the effect our decisions will have on what market participants surmise about our future conduct…Our actions have left a strong imprint on how markets expect us to behave”.
That is, the Fed has to follow through on all the warnings so the market starts to recalibrate the current paradigm that they can ignore Fed warnings because it will find a way to do nothing. Put crudely – it’s time to complete, or get off the pot.
And if you want to ignore Lacker, just consider that the Atlanta Fed’s GDPNow tracker for the current quarter increased to 3.5% Friday, from the previous read of 3.2%. That again suggests the Fed could still be on track to raise rates this month. “All but rules out” – phooey!
3. Half NSW mortgagees are concerned about making their repayments. Last week’s retail sales showed a big dip in NSW and Victoria dragged the overall national sales growth to 0% in July. That’s not entirely surprising when viewed in the context of a Domain survey released over the weekend.
Domain reported that “despite interest rates being at record lows, half of NSW mortgage holders are worried about not being able to afford their home loan repayments, new data shows”.
With record levels of household debt in Australia being led with big increases in Sydney property prices, the data showed “of those surveyed, one in five were worried they’d never pay off their mortgage entirely, and 20 per cent were concerned about rising rates”. Not good.
4. Central banks might finally be getting it. This is the best, most exciting, story of the day. ECB board member Yves Mersch over the weekend made some earth-shattering comments for the future of policy.
He warned against using “extreme [policy] measures [with] unacceptable side effects” in the EU. BUT crucially unleashed his inner behavioural economist warning caution against “academic proposals [that] seem to prefer sophisticated models to social psychology.” He added “we cannot fulfill our mandate with mathematical equations, but only with instruments that maintain trust in the currency”.
Booyah! And thank heavens.
5. US strategists are thinking stocks will be lower by year’s end. The semi-annual Barrons roundtable discussion of the 10 strategists on their roster has an uncertain feel about it with a forecast of 2138 for the S&P 500 by year’s end. That’s 41 points below Friday’s close of 2179.
Barrons say it’s a tug of war with 4 bullish, three bearish, and three of the group neutral.
“In this tug of war, the bulls say the combination of global central bank easy-money policies, improved earnings-per-share growth in the second half, and the continuing search for yield should lead to a happy ending in 2016. The bears, however, contend that rising election uncertainty, a Federal Reserve eager to boost rates, and the market’s high price/earnings ratio could make the rest of 2016 volatile,” Barrons says.
Interestingly it says “Downright gloomy these strategists aren’t, and some of the pessimists still look for the market to revive modestly in 2017. But you’d have to go back to the bad old days of 2002-03 to find lower spirits in our biannual polls.” Wow!
6. But everyone should stop acting like the world is going to end, says this analyst. Bob Bryan reports that Scott Colyer, the CEO and chief investment officer at Advisors Asset Management, reckons there are just too many pessimists out there.
“The people that said ‘sell in May’ were wrong, the people that said August is one of the worst months for stocks were wrong,” said Colyer. “Eventually, you have to ignore it.”
The issue is, Colyer told Business Insider, many investors are trying to “time the market” which usually mean figuring out when the top is in. The issue is, timing the market doesn’t usually work and can lead to investors missing some of the best days.
Collyer might be right in a stock specific world but he also says the bond market looks like a classic bubble. That, to me, is the clear and present danger in global markets.
Key data for the past 24 hours (with thanks to BNZ markets)
NZ: Building work put in place, q/q%, Q2: 5.5 vs. 2.0 exp.
UK: Construction PMI, Aug: 49.2 vs. 46.3 exp.
US: Chg in non-farm payrolls, (‘000), Aug: 151 vs.180 exp.
US: Unemployment rate (%), Aug: 4.9 vs. 4.8 exp.
US: Average hourly earnings, m/m%, Aug: 0.1 vs. 0.2 exp.
US: Factory orders, m/m%, Jul: 1.9 vs. 2.0 exp.
And now from CMC Markets’ Ric Spooner is today’s Stock of the Day
CBA – beware the false break.
CBA hit the top end of a well-defined chart support range last week.
It’s also come right back to the pack in terms of valuation. Having been valued well above the other 4 majors for a long time; CBA’s forward price: earnings ratio now stands at about 12.8 compared to Westpac on 12.6 and ANZ on 12.4. With a dividend yield of 8.4% after franking, this support zone might look attractive to yield hunters yet again.
However, this is a situation where a false break of support would not surprise. If that happens, the 50% retracement level and other Fibonacci projections around $68.75/$69.50 might be worth keeping an eye on.
Ric Spooner, chief market analyst, CMC Markets
You can follow Ric on Twitter @ricspooner_CMC
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