Non-Farm Payroll No Game Changer

The Fed declined to deliver policy easing this week, disappointing many whose expectations had been building for something over the past few weeks. Policy makers can probably see in Friday’s NFP print some vindication for their caution. Overall, yesterday’s report is not a “true game changer.” Despite a stronger headline, analysts flag the small uptick in the unemployment rate, flat work week and minimal wage gains. For many, the mid-September date remains the most likely time for action for Fed action. Their decision has now become more data dependent than ever. By the next decision date they will have gotten one more jobs report. However, given the decent turn of the current data, another poor job showing will only add to the market uncertainty.

Below are some other highlights of the week:

AMERICAS

• USD: US Personal income rose +0.5% in June, while spending was flat. Consensus had been for income to rise +0.4% and spending to tick up +0.1%. It seems that the consumer, Bernanke’s engine, seem reluctant to spend and prefers to hoard during this period of uncertainty.
• USD: Redbook Research latest indicator showed that US National Chain Store Sales fell -1.4% for the four week period straddling June and July. The market was looking for a -1.2% decline. The seasonally adjusted sales for the period were up +1.6%, y/y, rather than the forecasted +1.8%. It seems that consumers continued to shun cool weather merchandise.
• CAD: Canadian producer prices fell more than expected in June, mostly on lower prices for gas and coal. The IPP index fell -0.3% following a revised -0.1% drop in the previous month.
• CAD: Canada’s GDP in May came in slightly under expectations, expanding by a sub-consensus +0.1% after an unrevised +0.3% gain in May. Canada’s manufacturing was a “notable miss” according to analysts. All told, this sets Q2 on track for +2% overall growth and should lead to a downward revisions by the BoC for the quarter. Will Carney temper his tightening bias?
• USD: The Chicago PMI rose from 52.9 in June to 53.7 in July. The slight rise provides some relief from the regional Fed manufacturing surveys, which on balance did not meet expectations, but still indicates pretty slow growth in the sector. Not a surprise that the employment sub-index was the worst performer dropping -7.1 to 53.3, the lowest print in 12-months.
• USD: Conference Board’s consumer confidence index rose 3.2 points to 65.9, handily beating expectations. It was the first improvement in five months. However, it remains below February’s peak of 71.6 and pre session highs of 95.5+ between 2003 and 2006. This month’s improvement was all due to expectation index, which rebounded 5.7 points to 79.1. The labor market differential slipped -0.1 to -33, indicating that job growth did not pick up in the month.
• USD: ADP employment report indicated that private payrolls rose by +163k last month, beating expectations of a +120k gain. The prior month’s ballooned figure revised down-4k to +172k. Some analysts are attributing the increase to the BLS birth and death rate model may not be properly accounting for rising new business creation.
• USD: US ISM manufacturing index ticked up +0.1 point to 49.8 last month; this suggests that growth was flat on the month. The reading was in line with regional manufacturing surveys.
• FED: Ben and company elected to hold off on further monetary action this week, but highlighted that they stand ready to provide additional accommodation. The market consensus is that this likely signals a further round of QE to be announced at the September FOMC meeting. The decision will be data dependent, and any substantial improvements in the job market over the coming month could temper the Fed’s enthusiasm for action.
• USD: Last week’s US jobless claims rose slightly to +365k, just below the street’s forecast of +370K. The four-week moving average retreated to +365k, the best reading since March.
• USD: NFP gain of +163k in July, trumped the +95k expected. It’s a positive sign for growth, but also a case against the Fed delivering more monetary stimulus. The jobless rate climbed to +8.3% from +8.2% as more people returned to the job market seeking employment. Perhaps more people see a better chance of getting a job.
• USD: US ISM non-manufacturing index moved to 52.6 from 52.1. The market consensus was looking for a 52 even print. The details were mixed. Hiring shrank while new-orders rose and inflation pressures ticked up.

EUROPE Week in FX

ASIA Week in FX

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