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August non-farm payrolls +130K vs +160K expected

Highlights of the August 2019 non-farm payrolls report:

  • Prior was +164K (revised to +159K)
  • Estimates ranged from +110K to +232K
  • Two month net revision -20K
  • Unemployment rate 3.7% vs 3.7% expected (prior 3.7%)
  • Participation rate 63.2% vs 63.0% prior
  • Avg hourly earnings +0.4% vs +0.3% exp
  • Avg hourly earnings +3.2% y/y vs +3.0% exp
  • Prior avg hourly earnings 3.2% (revised to 3.3%)
  • Avg weekly hours 34.4 vs 34.4 exp
  • Private payrolls +96K vs +150K exp
  • Manufacturing +3K vs +5K expected
  • U6 underemployment 7.2% vs 7.0% prior
This isn’t such a bad number. The two tick rise in participation combined with steady unemployment is a good sign and the rise in wage growth is good sign.
The average over the past three months is +156K so this is a decent number, albeit a bit soft on the private side and census hiring added 25K jobs so that saved it from being even softer.

Gold bounces from $1500 in a strong rebound

Buyers step in at the figure

Buyers step in at the figure
Non-farm payrolls were just weak enough to keep the market comfortable with the idea of two more Fed rate cuts this year.
In turn, gold has jumped $20 in a sharp reversal higher to end a two-day rout.
In my view, there is an unceasing and growing appetite to buy gold from fund managers and retail. We’re still in the early innings. There was certainly a flush out of some weak hands yesterday but the bounce today — especially if it lasts through the close — is a great sign.
Ultimately, what matters is that we’re in a global easing cycle. Today’s 50 bps RRR cut from China underscores that. Undoubtedly there will be an ebb and flow but until it ends, gold will have a tailwind.

Eurozone Q2 final GDP +0.2% vs +0.2% q/q second estimate

Latest data released by Eurostat – 6 September 2019

  • Final GDP +1.2% vs +1.1% y/y second estimate
The secondary reading can be found here. No change to the quarterly estimate with only a minor upwards tweak to the annual reading. The details see that household consumption grew by 0.2% on the quarter relative to the 0.4% growth posted in Q1.
It still shows that euro area growth is still hanging on modestly as sluggish economic conditions continue to weigh on the region.

Nikkei 225 closes higher by 0.54% at 21,199.57

Tokyo’s main index closes just under the key daily moving averages

Nikkei 06-09

US-China trade talk hopes continue to give equities in the region a bit of a boost following solid gains posted by Wall St in overnight trading. That said, market sentiment overall today is more calm and measured with US futures only seen up by ~0.1% currently.

All eyes are on the US non-farm payrolls data later today as well as Fed chair Powell’s speech before the weekend kicks in. As such, expect markets to hold more steady in the European morning barring any trade headlines to temper with the mood.
USD/JPY is holding a tad higher at 107.00 currently with large expiries seen around 107.00-05 potentially a factor at play in trading today.

Brexit: What happens now?

Sterling buyers get more reprieve as the House of Lords strike a deal to let the Brexit delay bill pass

BoJo

Let’s recap some of the events from yesterday first again:

1. House of Lords end debate “early” at 0030 GMT as peers agree to let bill pass
2. Boris Johnson says he would rather “be dead in a ditch” than delay Brexit
Yeah, not as dramatic as what we saw on Wednesday but certainly still plenty of uncertainty still at play. At this stage, the Brexit delay bill looks set to be turned into law before 1600 GMT today and should gain royal assent thereafter.
Peers give up on trying to filibuster the bill so it looks like it’ll be smooth-sailing from hereon.
That will cement further hopes of avoiding a no-deal Brexit but remember, this is just the UK side of the equation. With no further solution to the backstop or a clear game plan, will the EU grant an extension as such?
Meanwhile, word on the street is that the government will try once again on Monday to seek a general election before 31 October. With the Brexit delay bill set to turn into law, will opposition lawmakers back their earlier rhetoric to support an election now?
If they don’t, we’re going to be stuck in a bit of a quagmire again as the UK government has to ask European leaders for an extension without a working majority and also with no clear plan/solution to end all of this mess.
But with Boris Johnson claiming that he’d rather “be dead in a ditch”, will we see him potentially resigning before all of this ends?
Avoiding a no-deal Brexit sounds good on paper but without a firm idea on how to find a compromise, it is merely kicking the can down the road perpetually at the expense of the domestic economy – which looks set for a recession now.
So, is a further delay really a good thing for the pound? I reckon on the balance of hopes of a second referendum, then maybe yes. But the longer this drags on, it’s akin to tearing off a band aid if anything else.
The quicker you do it, the better. The longer you take to rip it off, it just prolongs the agony and the pain suffered.

Ray Dalio dials back his recession forecast probability – 75% chance no recession this year or next

Bloomberg with an overnight piece on the views of Bridgewater founder Ray Dalio

I double checked, even put new batteries in my abacus and yep, that’s a  75% chance of no recession.
I also did some Googling.
  • He was 35% chance of a recession back in February
  • 40% in August
(according to an admittedly non ccomprehensive search)
On his latest forecast of 25/75:
  • central bankers will be limited in addressing it
  • (it being a recession … I’d suggest ‘Return to Sender’ )
  • The Federal Reserve, European Central Bank and Bank of Japan “have to face the fact that when the next downturn comes there will not be the power to reverse it in the same way that existed before”
  • recommends the Fed cut interest rates slowly
More at the link above
Bloomberg with an overnight piece on the views of Bridgewater founder Ray Dalio

China survey of 500 big private companies … don’t mention the (trade) war

Caixin report on an annual survey of China’s top 500 private enterprises

  • businesses with annual turnover of more than 500 million yuan ($70 million),
  • by the All-China Federation of Industry and Commerce, a body backed by the government that seeks to represent the non-state sector
I found this of interest:
Rising labor costs were cited by private companies as their biggest obstacle for the fifth year running. The two other top difficulties to doing business were 
  • high taxes 
  • and expensive borrowing costs
the same problems highlighted in the 2017 report
No mention of the trade war? I’m surprised, but there you go. Caixin (may be gated)

Its nonfarm payroll day in the US – preview

NFP report is due Friday, some comments from Goldman Sachs on what they expect

Estimate the headline nonfarm payrolls +150k
  • Our forecast reflects a 15-20k boost from Census canvassing activities, but a slower underlying pace of private-sector job gains in part reflecting the return of the trade war
Further forecasts:
  • unemployment rate unchanged at 3.7%.
  • average hourly earnings +0.2% m/m and 3.0% y/y