Sat, Dec 04, 2021 @ 16:20 GMT
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Morning Mail: US Payrolls – Signal Or Noise?

Market movers today

  • We start the week in a quiet fashion with US markets closed today due to Labor Day holiday.
  • Markets will continue to digest weak US jobs report from Friday and its implications for the Fed’s tapering plans (see more below). US Federal emergency unemployment benefits of USD300 per week and other aid will expire today, after about half of US states have already halted the payments earlier.
  • In Denmark, data on bankruptcies and forced sales in August are due.
  • Later this week, the key event for markets will be the ECB meeting on Thursday. US President Joe Biden will also likely decide whether to re-nominate Fed Chair Powell to a second term during this week.

The 60 second overview

Payrolls: US jobs data disappointed on Friday, with payrolls coming in at 235.000 for August. This was clearly an unwanted surprise for the US central bank which has been talking about tapering asset purchases at one of the upcoming meetings (e.g. in September). On the one hand, slower jobs growth could warrant a more accommodative approach. However, the case can also be made that jobs creation is nonetheless in the pipeline amid continued vaccination, that extraordinary measures which support income shortfall are set to expire (this week, in fact) and that surveys indicate high labour demand. As it is almost anybody’s guess, which way the Fed will choose to interpret weak job creation, the impact on the dollar from expectations to future fed policy will be a coin toss in the near term. There is a real risk Fed may wish to sound a tad more dovish until jobs accelerate again but it may also choose to look through ‘noise’.

ECB: The ECB meeting on Thursday next week is set to focus on the PEPP re-calibration and the inflation outlook. With stable and benign financial market conditions, record low real rates and an economy that is recovering well in Q3 as well, the conditions are met to slow the PEPP purchase pace but ECB will not call this tapering. See more in ECB Preview: Recalibrating, not tapering – but hawks will squawk (2. September).

The Big Picture: This morning we published our new updated global macro forecasts, see Big Picture: Delta delayed recovery (6 September). In the piece, we argue that the delta variant will continue to create headwinds for the global economy amid slow vaccination roll-out. Global macro momentum is set to ease further amid fading boost from stimulus and stalling re-opening of economies. The balance of risk to our growth outlook is to the downside, while supply side problems could lead to more persistent inflation problems stoking stagflation concerns.

Equities: Friday ended on a slightly weaker note, weighed down by the huge job miss. Tech and growth took the lead as markets discounted a dovish interpretation for Fed. Tech, communication services and health care were the winners for the day, while utilities, materials, industrials and financials sold off. S&P recouped the initial losses and ended unchanged, Nasdaq rose 0.2%, Russell 2000 -0.5% and Dow -0.2%. Buoyant setting in Asia this morning, with markets up 1-2% led by Japan. US markets will be closed for holiday and futures only see small movements.

FI: It was all about the US labour market report on Friday. A sharp US-led rally on the weaker than expected headline figure, was quickly reversed by the interpretation of stronger wage figures, leaving UST’s 2.5bp higher for the rest of the day (around 1.32%). Core-EGB was mostly following US rates for most of the day. With the US labour market report essentially can be read with any individual bias, the signals from the FOMC members this week will be scrutinized for any tapering clues ahead of the FOMC meeting later this month (the silent period starts on Saturday). We also have the ECB meeting on Thursday, where the calibration of PEPP is widely expected to end up at a lower purchase pace. We expect EUR60/bn in Q4. Today US markets are closed due to Labor day, hence we expect a significant amount of ‘sideways’ trading. Later in the week, US President Joe Biden will also likely decide whether to re-nominate Fed Chair Powell to a second term during this week.

FX: EUR/USD temporarily touched 1.19 on Friday after the job growth in US disappointed. EUR/SEK dropped towards 10.15, while EUR/NOK rose to 10.30.


Danske Bank
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