US jobs were much weaker than expected in not only September but also August, which many had expected a substantial upward revision, not downward. September nonfarm payrolls came in at 142,000, considerably below the estimate of 201,000. August’s weak 173,000 print was revised even lower to 136,000.
The only saving grace was that the unemployment rate remained steady at 5.1% in September. Average hourly wage growth was flat, and could have been worse if not for a similar slowing in both aggregate hours and aggregate wage (-0.2% m/m each).
The soft jobs numbers in the last two months certainly make October rate lift-off an even more unlike endeavour for a data-dependent Fed. The labour market conditions which have been solid for much of this year seems a tad less solid now.
The question is now whether the Fed thinks that these developments are indicative of a softening of the jobs market or just a temporary blip in the otherwise strong recent trend. The payrolls numbers are still near the 200,000 mark at 185,000 after the weak August and September figures.
I feel October is out of the picture. Markets also think so, placing a 10% implied probability in the Fed funds futures market after the jobs data, compared to an also rather low 18% prior. The likelihood of a December move similarly, slipped to 33.4% from 42.6%.
However, there are still sufficient data until the December FOMC to convince the Fed to raise rates. Clearly, the jobs numbers for October and November need to pull up.
Japan may lower CPI, GDP outlooks
The BOJ may lower its CPI and GDP forecasts in its biannual outlook due on 30 October, which suggested that the timeframe to achieve the 2% inflation target may be pushed back. The Nikkei noted that the Japanese central bank is likely to cut its CPI estimate for FY2015 to less than 0.5% from 0.7%, owing to continued weakness in oil prices, while FY2015 GDP forecast may be lowered to 1% from 1.7%.
FY2016 GDP could also be reduced from the current 1.5%. In addition, while investments and consumer spending are holding up, domestic growth may have fallen short of the Bank’s expectations, Nikkei added.
However, BOJ chief Kuroda remained upbeat about reaching the CPI goal, as he reiterated last Monday that underlying inflation trend has been improving steadily. As I mentioned previously, core inflation, excluding food and energy, rose to the highest since April 2013, which could give credence to Kuroda’s optimism. This along with underlying global concerns may support the Japanese yen.
The BOJ’s semi-annual outlook for Economic Activity and Prices is expected to be released during the 29-30 October monetary policy meeting. Prior to that, there is a policy meeting this Wednesday, 7 October, but many are not looking at any policy changes.
Singapore to ease?
There are increasingly more analysts expecting the Monetary Authority of Singapore (MAS) to ease policy in the October meeting. Dim domestic GDP outlook, alongside a deepening China’s slowdown, and weak commodity prices, have raised growth concerns in the city-state.
These are expected to be key considerations in the MAS’ deliberation when it sets its monetary policy. The SGD has already hit an over six-year low of 1.4366 against the USD last Friday. More expectations of monetary easing will likely push it further south towards 1.45. While the date of the meeting is not announced yet, it is likely to take place within 7-14 October.
Meanwhile, the Straits Times Index (STI) struggled to regain the 2800 handle, closing at 2793.15 on 2 October. Although we could see some outperformance in today’s session, due to a strong finish from Wall Street, further upsides may be limited. Continued speculation over the timing of the Fed rate hike will step up uncertainty, and market participants may rationalise that it is better to hold less positions until more clarity emerges. That said, the 2850 level is likely to restrain bulls today.
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