Market Update: Friday, September 2, 2016

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  • Stocks open higher following jobs report. U.S. equities are rising in early trading after August payroll data, though solid, missed expectations; lifting expectations that the Fed will likely hold off on a rate hike when it meets later this month. This comes on the heels of a flat session yesterday which saw defensive sectors lag while cyclicals gained, led by technology and materials. Overseas, European indexes are mostly higher in afternoon trading, while shares in Asia finished mixed overnight amid tight trading ranges as investors remained cautious ahead of U.S. jobs data; Japan’s Nikkei Index closed flat, while China’s Shanghai Composite and Hong Kong’s Hang Seng rose 0.1% and 0.4%, respectively. Elsewhere, the dollar initially fell sharply versus major currencies following the jobs report, 10-year Treasury notes rose with yields now at 1.61%, and commodities are rising as COMEX gold is up 1% near $1330/oz. and WTI crude oil is higher by 2.5% at $44.30/barrel.

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  • One day in September done. As was well noted on our blog and many other places yesterday, September is the weakest month on average for equites. After one day, it looks a lot like August though – as most equity indexes finished near flat. The S&P 500 was down, but only slightly to the tune of -0.004%. This was the weakest first day of September ever (going back to 1928 data), lower than the 0.054% drop in 2014. The good news is at the lows the S&P 500 was down 0.64% and it did finish near the highs of the day. Does the first day matter? Probably not, but we looked anyways and found that since 1950 the first day of September has been lower 23 other times and the rest of the month was down 1.9% on average and higher 35% of the time.
  • More strong data from the U.K. Consistent with yesterday’s strong data, the U.K. construction index rose to 49.2 in August, from 45.9 in July. This was well ahead of expectations. Solid economic data reduces pressure on the Bank of England to lower interest rates further or engage in other extreme monetary policy. The pound rallied on the news, continuing its strength from yesterday.
  • Solid but not spectacular August jobs report keeps Fed on track for a hike in December, but a hike in September now seems unlikely. The U.S. economy created 151,000 net new jobs in August, short of the consensus expectation of a 180,000 gain. However, the prior month’s tally-originally reported a 255,000 gain-was revised to show a 275,000 gain. Year to date, the U.S. economy has created 182,000 jobs per month, below the 240,000 per month average in 2014 and 2015. At 182,000 per month, more than enough jobs to tighten the labor market and push up wages, keeping the Fed on track to tighten rates. The unemployment rate unexpectedly remained at 4.9% in August-it was expected to drop to 4.8%-and average hourly earnings decelerated to +2.4% year-over-year from +2.7% in July, falling short of expectations. One caveat to the report is that there was again weakness in the education component-as there has been every August since 2011-due to shifts in the start of school years over time. The August jobs report has now come in below consensus expectations in each of the past 6 years. But in the prior 5 years, the August figure was revised higher upon release of the September data in early October, so stay tuned.
  • Busy week ahead for data and events amid a quiet week for U.S. data. The week after the release of the monthly jobs report is typically a  quiet one for U.S. economic releases, and next week is no different, with the service sector ISM report for August as the only key entry on the docket. There are a few Fed speakers, including Federal Open Market Committee (FOMC) voter Rosengren, and the Fed will release its Beige Book ahead of the September 20-21 FOMC meeting. Overseas, the key events are the start of the Chinese data release for August and the European Central Bank meeting on September 8. This weekend, the leaders of the G-20 will meet in China, and that meeting may generate some headlines as the new trading week begins.

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Friday

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