Major Events of Last Week
Investors were stunned late last week when the USA published its all-prevailing labor report for September, which badly missed analysts’ expectations. The announcement of very depressing and worrisome employment statistics immediately prompted a major sell-off in US equities, government bonds and the US Dollar. Prospects, that the US Federal Reserve will hike interest rates before the end of 2015, also plunged sharply as traders emphatically lowered their bets that such an event was still a viable option. Despite all this bearish drama, the topmost US indices, nevertheless, managed to pare earlier losses towards market close epitomized by the Dow Jones Industrial Average rallying by just over 170 points; the S&P500 rising by nearly 25 points and the NASDAQ soaring by almost 76 points.
Without question, the pivotal event of last week occurred last Friday when the USA posted its eagerly awaited labor report for last month disclosing that US employers created only 142,000 jobs during September compared to the predicted estimate of 203,000. In addition, further dour news emerged from this document when it revealed that the August Non-Farm Payroll (NFP) figure had been sharply revised lower to 136,000. Consequently, the combined total of the last two consecutive months recorded the lowest gain, for such a period, in over 12 months.
After studying these figures with intent, analysts advised that the recent sizeable slowdown in the global economy had definitely incited US employers to slam the brakes on their previous ambitions to boost their labor forces. They further stressed that the NFP for last month provided strong evidence that Chinese economic woes were starting to drain US strength. They concluded that no matter how this report is evaluated, you cannot escape the key fact that it was disastrous especially as it severely curtailed hopes of a Fed rate hike later this year.
This report contained an array of disturbingly weak statistics which clearly demonstrated that both the US economy and labor market were in far worse shape than previously envisaged. For example, the percentage of the US population contributing to the total US workforce slumped to just 62.4%, its lowest value in almost 40 years, after losing almost 350,000 potential employees last month. Inflationary issues were also highlighted by the average hourly wage slipping 1 cent lower to slightly over $25. Essentially, this parameter has now remained practically constant for the majority of 2015 and has only risen by 2.2% since the same time last year. Finally, as the number of total jobs generated during July and August had been sharply revised lower, this adverse development should provide the Fed with further stress.
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What to Expect This Week
The United Kingdom will commence proceedings by presenting its Services PMI for September on Monday. A second consecutive month of weakness could ignite another Sterling sell-off. Later, the US Institute of Supply Management will disclose its non-manufacturing PMI for last month, which is predicted to slump from its previous reading of 59.0 to 58.0 this time around.
On Tuesday, Australia will reveal key trade data. If exports weaken, as widely anticipated, then such an outcome could prompt the Reserve Bank of Australia (RBA) into considering additional monetary easing. The RBA is then expected to keep its interest rates unchanged although it could adopt a more dovish stance in a subsequent meeting by suggesting the need for additional stimulus in the imminent future.
The Bank of Japan (BoJ) is scheduled to issue its latest policies on Wednesday when it should adopt an optimistic attitude. Although this event is expected to be downbeat, the Japanese Central Bank could confirm that it is primed to consider additional easing measures should national inflation deteriorate any further. Great Britain will complete the session by publishing its Manufacturing Production figures for August. Expect consensus is presently favoring a second consecutive month of declines which could exert fresh pressure on the British pound, if validated.
On Thursday, the Monetary Council Committee (MPC) of the Bank of England (BoE) will deliver its latest policies, which should contain no new surprises or extensive modifications. In fact, economists have deduced that the MPC should present a more dovish outlook as a direct result of the increased risks associated with the recent global economic slowdown. The pivotal event of the week will then occur when the US Federal Reserve releases the minutes from the last meeting of the Federal Open Market Committee (FOMC). Investors will scrutinize this document very carefully in order to glean any insights into the timing of the first Fed interest hike in nearly a decade. This will especially be so following the disclosure of a very weak US Labor report last Friday.
No important data releases or events will occur on Friday.