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Goodbye, 2015 Fed hike?


A hugely disappointing non-farm payrolls on Friday caused volatility that’s leading into this morning. Global equity markets were the main beneficiary, where stocks rallied along with commodities as the price of the dollar slips off the back of the weaker than expected numbers. Markets closed on a high, with the Dow up (+1.23%), the S&P higher (+1.43%) and the NASDAQ above (+1.74%). Markets are now pricing in a March 2016 Fed hike which is seeing the US dollar slip, helping both emerging markets and boosting commodity prices.

The non-farm payrolls print came in at 142k vs 200k expected, but also came in below the August print at 173k which suggests there is still significant slack in the jobs market. In effect this print wipes off the possibility of a Fed hike this year. However, the unemployment numbers came in line at 5.1% as expected, while we also had weaker than average hourly earnings MoM where the rate dropped to 0% from +0.2% expected. In addition, the labour force participation rate dropped to 62.4%, its lowest level since October 1977. Finally, there was more bad news in the form of durable numbers which came in at -0.2% mom vs -0.4% mom, causing the Fed further concerns.

In commodities, oil prices rallied after the NFP print by climbing up +2.44% for WTI at $45.83/bbl, while gold also spiked up more than 2.13% as bond markets look less attractive at $1137/bbl. Looking ahead today there isn’t much to speak of in terms of data, so much of the talk returns to Janet Yellen and when she thinks a Fed hike is appropriate.

SocGen, the french bank, points out that the annual dynamics of the US employment turned below 2% after peaking at 2,34% in February. The Bank notices that this is not a dramatic change given a post-war average at +1,9%, however a change in economic trend could be debated.
The Bank sees a continued rally on the EURUSD towards 1.1320 and then possibly even to 1.1450 and indicates the ECB could then react to this kind of appreciation.


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