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Week 40 Wrap – Despite non-farm payrolls Fed continues to eye December rate hike

The biggest news this week was the perceived disappointing non-farm payrolls which showed the US losing jobs for the 1st time in 7 years. However, whereas a number of people would have expected the USD to react negatively there were a number of good items that came out of the employment report. Firstly last month’s NFP was revised upwards and secondly unemployment unexpectedly fell to 4.2%. Most notably was the impressive pickup in average hourly earnings, which came in at 0.5% instead of the 0.3% which was expected. This is a big boost for the Fed as they continue to look for wage inflation to translate into economic inflation. All of this suggests that despite the poor release we can continue to watch for an interest rate rise at the December FOMC meeting.

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Let’s see what happened this week in more detail.

USD

Monday 2nd October

ISM Manufacturing PMI | Prior 58.8 | Expected 57.9 | Actual 60.8

Wednesday 4th October

ISM Nonmanufacturing PMI | Prior 55.3 | Expected 55.5 | Actual 59.8

Friday 6th October

Average Hourly Earnings | Prior 0.1% | Expected 0.3% | Actual 0.5%

Non-farm payrolls | Prior 156k | Expected 88k | Actual -33k

USD Summary: The US economy continues to strengthen which will certainly give the Fed confidence in deciding to increase interest rates in December should things continue. We saw ISM manufacturing and nonmanufacturing PMI’s significantly beat expectations this week and average hourly earnings coming in at 0.5%, well ahead of the forecast 0.3%. Despite the lacklustre non-farm payrolls, which was somewhat priced in because of the recent hurricanes, something we talked about in last week’s week ahead article, this week was a good week for the USD.

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GBP

Monday 2nd October

Manufacturing PMI | Prior 56.9 | Expected 56.3 | Actual 55.9

Tuesday 3rd October

Construction PMI | Prior 51.1 | Expected 51.2 | Actual 48.1

Wednesday 4th October

Services PMI | Prior 3.2 | Expected 53.3 | Actual 53.6

GBP Summary: After seeing a surprising amount of resilience in the GBP over the recent months concerns are beginning to creep into the economy, most evident by the construction industry going into contraction for the 1st time since the initial Brexit vote. With continued political uncertainty we are likely to see continued weakness in the GBP as PM May continues to come under increasing pressure to resign, especially after the farcical Conservative party conference speech. The fear in the back of everybody’s minds is that if she does resign and there is another leadership election could we see another general election and subsequently a Labour government in power. Newspaper reports today suggested that the Brexit negotiators for the EU are having increased numbers of discussions with Labour just in case this eventuality comes to pass. Watch for the GBP to continue to be at the behest of rumour and political uncertainty more so than economic releases.

AUD

Tuesday 3rd October

Interest Rate decision and Monetary Policy Statement

AUD Summary:  The RBA decided to leave interest rates on hold this week in the pursuit of inflation. The Australian economy has benefited recently from much better Labour conditions but despite this wage growth has remained under pressure. Overall the statement was a balanced statement with no indications of a change in monetary policy in the near-term.

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2017-10-07T12:08:00+00:00