Talking Points:
- October NFPs surge by expectations, reigniting taper talk as US Treasury yields surge.
- Unemployment Rate increases one-tenth of one percent to 7.3% as expected.
- USDJPY surges back to ¥98.92, erasing most of yesterday’s steep losses.
The September US labor market report was delayed by two weeks as a result of the US government shutdown, although market participants hoping to have seen progress have been left disappointed. The US economy’s labor momentum slowed further in September, with jobs growth dropping by -23.3% from August.
Accordingly, with the Federal Reserve’s dual mandate and forward guidance currently focused on bringing the Unemployment Rate down to 6.5% before QE3 is fully tapered, the potential silver lining for the report was a one-tenth of one percent drop in the jobless rate, exceeding the forecast for it to have held at 7.3%. As a result, the market reaction has been not purely USD-negative, but rather risk-positive.
Here’s the data lifting the US Dollar and hurting risk appetite:
- Change in Nonfarm Payrolls (OCT): +204K versus +120K expected, from +163K (revised higher from +148K).
- Change in Private Payrolls (OCT): +212K versus +125K expected, from +150K (revised higher from +126K).
- Unemployment Rate (OCT): 7.3% as expected, from 7.2%.
- Participation Rate (OCT): 62.8% from 63.2% [lowest since 1978].
Overall, the data paints a meager picture of the US labor market in September, which all but certainly deteriorated in October thanks to the US government shutdown. Accordingly, with the Federal Reserve having labeled US fiscal issues as a prime reason not to taper QE3 in September, we find that another hold at $85B/month next week is increasingly likely in the wake of today’s NFP report. Price action in FX markets after the NFP report suggests a similar outcome.
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