Dollar Marking Time Ahead of U.S. September Jobs Report
October 6, 2023
The DXY weighted dollar is unchanged. The U.S. currency rose overnight by 0.4% against the yen and 0.1% relative to the Aussie and Canadian dollars but fell by 0.2% versus the euro and sterling and by 0.1% against the Swiss franc.
Based in part by the sharp recent retreat in oil prices and a very weak ADP report two days ago, markets are hoping for a soft U.S. Labor Department report consistent with downwardly trending inflation ahead. Share prices closed up 1.6% in Hong Kong and +0.6% in Singapore and India. Key continental European stock indices have risen 0.6-1.2%, but U.S. stock futures are only marginally firmer.
Ten-year sovereign bond yields have climbed four basis points in the United State, Italy and France, three bps in Germany, Britain and Spain.
Bitcoin’s prices jumped 1.1% overnight, but oil and gold are only 0.2% firmer.
Following July’s unexpectedly steep 11.3% monthly plunge, German industrial orders recovered 3.9% in August.
A quartet of Japanese data releases revealed 1)a smaller-than-forecast 2.5% drop in household spending in August, marking the ninth year-on-year decrease in a row; 2) a $14 billion decline in international reserves; 3) the 17th on-year slide in inflation-adjusted average cash earnings in August, this time by 2.5%; and 4) 9- and 2-month highs in Japan’s leading and coincident economic indicators in August.
Britain’s Halifax house price index fell 0.4% on month in September, resulting in a fifth straight year-on-year decline. The 4.7% slide over the past year was the most in 169 months.
France’s current account deficit shrank from EUR 5.9 billion in August 2022 to 795 million euros in August 2023.
Italian retail sales slid 0.4% in August, resulting in its smallest year-on-year advance (2.4%) in ten months.
Austrian wholesale price deflation continued to wane in September, printing at -2.5% versus -7.3% in June. Still, there has been a huge transformation from the record on-year WPI increase in June 2022 of almost 27%.
Central banks in Serbia and India left interest rates unchanged as was expected. The key National Bank of Serbia interest rate had been increased as recently as July and, at 6.5%, is its most elevated since 2015. July’s hike was the sixth 25-basis point increase of 2023 following 400 basis points of tightening in 2022. The pandemic low of 1.0% from December 2020 to April 2022 had been an all-time trough. Serbian CPI inflation has slowed from 16.2% in March to a 15-month low of 11.5% as of August. That’s still well above the 1.5-4.5% target corridor, and Serbian monetary officials affirmed the need to stay cautious due to elevated energy prices and wage costs.
The Reserve Bank of India‘s 6.5% repo rate also has not yet begun to drop. From a low of 4.0% in the two years between May 2020 and May 2022, such was raised 225 basis points during 2022 and by 25 basis points in February of this year. Indian CPI inflation fell from a 15-month high of 7.4% in July to 6.3% in August but still lies above the 2-6% target range, and bank officials seek disinflation to the middle of that band.
Just In: The U.S. jobs report blew forecasts out of the water and leaves the Fed scant choice but to tighten more forcefully than officials were planning. Not only was the 336k leap in non-farm employment twice consensus expectations, but the preliminary July and August combined employment growth was revised 119k higher. 799 thousand new jobs were created in the third quarter alone, and the 156.8 million level of employment is 20%, or a fifth larger, than its pandemic low in April 2020. Over those ensuing 41 months, U.S. jobs have soared at a monthly pace of 648 thousand even as the Fed raised the federal funds target by 525 basis points. Jobs growth in September was especially rapid in the government sector and leisure and hospitality.
Other aspects of the jobs report were not quite as spectacular as the growth in jobs. The jobless rate merely remained at August’s 18-month high of 3.8%, and weekly hours worked and the ratios of labor market participation and employment-to-population were unchanged as well. On-year growth in average hourly earnings ticked 0.1 percentage point lower to a 27-month low of 4.2%.
Still, an unavoidable takeaway is that Fed officials think that achieving their 2% sustainable inflation goal will entail monthly jobs growth not exceeding 100k versus a 266k actual growth rate last quarter. There’s more work to be done. U.S. share prices understandably fell after the market opened.
Two other central banks that also reviewed monetary stances in the past 24 hours did announce interest rate changes:
- The Central Reserve Bank of Peru‘s rate was cut by 25 basis points to 7.25%. That’s the second such cut in a row. From a pandemic low of 0.25% from April 2020 until August 2021, the rate had been lifted by 225 bps over the balance of 2021, 500 bps during 2022, and one final 25-bp increment last January to 7.75%. Peruvian CPI inflation crested in mid-2022 at 8.8%, and slowed thereafter to 5.0% last month. This level still exceeds the 1-3% target, and a statement explaining today’s decision cautions that “this decision does not necessarily imply a cycle of successive reductions in the rate of interest. Future adjustments in the reference rate will be conditional on new information on the inflation and its determinants.”
- The National Bank of Kazakhstan’s base rate was lowered to 16.0% today following an initial 25-basis point cut in August from 16.75% to 16.5%. The bank previously had hiked the rate by 75 basis points in 2021 and 700 bps in 2022. A pandemic low of 9.0% prevailed from July 2020 until July 2021. Although CPI inflation in Kazakhstan dropped appreciably from 21.3% in March to 11.8% in September, officials worry about price risks from fiscal policy and in the face of elevated inflation expectations. A comment embedded in the bank’s statement affirming that “Monetary policy easing until the end of the year will be considered if there is a slowdown in annual inflation to a one-digit level “suggests that the next rate cut will be delayed until inflation is below 10%.
Copyright 2023, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Central Reserve Bank of Peur, German factory orders, National Bank of Kazakhstan, National Bank of Serbia, Reserve Bank of India, U.S. jobs report
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