The September employment report came in weaker than expected at 142,000 which was well under low-end of the consensus which were at 180,000. Rounding out the weakness are average hourly earnings which also came in below the low-end estimate, showing no change month-on-month and a year-on-year rate of 2.2 percent that was unchanged from August.
One of the most noticeable surprises in the September employment report was a sharp dip in the labour participation rate to 64.4 percent a 40-year low. At the same time unemployment remains very low at 5.1 percent and job openings, as tracked in the recent JOLTS report, are unusually high.
As Friday wore on, the currency rebounded, equities recovered all of their losses and then some while bond yields continued to retreat. On the week, the dollar was down against all majors, with the exception of the pound.
Many of the U.S. dollar’s woes can be directly linked to soft growth globally. The stronger dollar has made U.S. exports expensive and imports cheap which in turn, weakens goods manufacturing.
After healthy gains in August, all equity indexes retreated with heavy losses of over 3 percent in September.
The weak employment report now has many investors thinking that an interest rate increase by the Federal Reserve later this month or even in December is unlikely. That line of thinking led investors to speculate that the European Central Bank, which is meeting on Thursday, may need to announce further stimulus measures. According to ECB President Mario Draghi, Eurozone growth is returning. He also reiterated his commitment to pursuing full monetary union in the region. September manufacturing in the Eurozone PMI was 52.0, down slightly from 52.3 in August output rose for a 27th successive month reflecting further growth in new business.
Equities were mixed last week. However, that wasn’t the case for September all indexes retreated on the month and for many, a second consecutive month of decline.
The Nikkei was down for a third consecutive week, losing 0.9 percent. The index tumbled 8.2 percent in August and 9.0 percent in September. The economy contracted in the second quarter and recent data indicate that the third quarter may be negative as well, sending the country into another technical recession. Business sentiment as reported in the September Tankan weakened from the previous quarter. August industrial production disappointed and retreated on the month. Household spending surprised with a much larger than expected increase after sliding in July while retail sales were up by a timid below consensus 0.8 percent.
Business conditions in Japan worsened during the third quarter, as the closely watched Tankan survey conducted by the Bank of Japan showed. The outlook index matched forecasts although it was down sharply from the previous quarter. The Markit/Nikkei Japan manufacturing PMI remained in expansion territory, with a reading of 51.0 in September down from 51.7 in August.
Investors were disappointed by the string of mediocre economic data from the U.S. and abroad. In Japan, the data indicates that perhaps there could be a technical recession in its future. In the Eurozone, some stabilization is evident.
Central banks are front and centre this week. No policy change is expected from the Reserve Bank of Australia, Bank of England or from the Bank of Japan this week, although some analysts expect the BoJ to take action at its meeting at the end of the month.