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This morning’s risk-averse mood has been justified by US job numbers this afternoon. Although the headline number missed expectations, a look beneath the bonnet revealed that wages were still growing, and at a faster-than-expected pace, while short-term unemployment was down. It is hardly surprising to see actual job growth slow, since the US economy is now close to ‘full employment’, and so the underlying figures take on greater importance.
Overall, it looks like US data might still provide the rationale for a rate increase this month, although the decision is finely-poised. As such, I would not be surprised to see Janet Yellen and co split the difference, and opt for a 10 basis point move rather than the 25 point rise that is the standard expectation. In this way she could defend herself against claims both that she is asleep at the wheel and that the US economy is not ready for a full cycle of tightening just yet.
The new week will be complicated by two developments – a US bank holiday and the reopening of Chinese markets. The former could prompt a fairly dull session in Europe without US traders to lighten the mood, but the latter may see another selloff as Chinese investors return to the fray. China data during the week will also provide much-needed information on whether a further slump in equities is justified.