Market Update: Friday, October 7, 2016

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  • Jobs report falls short; stocks lower. U.S. equities are tracking lower with global markets this morning as the highly anticipated nonfarm payrolls report, though strong, failed to meet consensus. Major indexes finished mixed yesterday in a muted session as only materials (0.8%) moved more than half a percent. Stocks in Asia fell modestly ahead of the U.S. payrolls report, with both the Hang Seng and Nikkei closing lower by 0.4% and 0.2%, respectively. The real headline overnight was the pound, which fell more than 6% against the dollar at one point, but has now recaptured more than half that loss; European markets are mostly lower amid the volatility, with the exception of the U.K.’s FTSE, up 0.9% as investors expect firms in the country to benefit from a weaker currency. Treasuries are showing modest gains as the yield on the 10-year note has fallen to 1.74%, gold is up 0.4%, and oil is lower but holding above $50/barrel.

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  • Job creation slows but still strong enough to keep Fed on track. The economy added 156,000 jobs in September, a small deceleration from August’s upwardly revised 167,000 (initially reported at 151,000). Taking into account the upward revision, the report was largely in-line with consensus. The unemployment rate ticked up to 5.0%, but for the right reason as more workers joined the labor force, while hourly wages accelerated to 0.2% month over month from August’s 0.1%. The U.S. economy has created 178,000 jobs per month so far in 2016, below the 240,000 per month average in 2014 and 2015, but more than enough to tighten the labor market and push up wages, keeping the Federal Reserve Bank (Fed) on track to raise rates in late 2016 or early 2017.
  • Pound sterling has a flash crash. Last night, the sterling crashed more than 6% in a matter of seconds during early Asian trading. It has since rebounded sharply, but is still off more than 2% this morning. This comes on the heels of significant weakness earlier this week as well. The big question is what caused the 6% crash in a few seconds? The computers and algorithms take most of the blame; rumors of a “fat finger” trade are floating out there also. At the same time, the chance of a “hard” Brexit continues to gain momentum. Comments from French President Hollande pushing for a hard exit were cited as another potential reason for the volatility. A hard Brexit means the U.K. must incur greater consequences for leaving the EU. For more on our thoughts on a hard versus soft Brexit, be sure to read this blog post from earlier this week.
  • Week ahead. Markets will be open on Monday for the Columbus Day holiday. Highlights for the week include the release of the minutes from the Fed’s September policy meeting on Wednesday and retail sales data on Friday. We will also be getting reports on small business sentiment on Tuesday, labor market conditions on Wednesday with the Job Opening and Labor Turnover Survey (JOLTS), and the University of Michigan’s Consumer Sentiment survey on Friday. There’s a busy lineup of Fed speakers throughout the week, highlighted by Fed Chair Janet Yellen’s keynote address at the Boston Fed on Friday. International data include loan growth and trade data from China, business sentiment in Germany, and retail sales and machinery orders from Japan.

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Friday

Saturday

  • IMF/World Bank Fall meetings in Washington, DC

Sunday

  • IMF/World Bank Fall meetings in Washington, DC

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