Analysts Weigh In On What You Thought Was An Unambiguously Bad Jobs Report

Ok, it’s time for everyone to try and read the tea leaves from the August jobs report, although honestly, this seems like one of those cases where most of what you need to know is in the headline prints.

Now that doesn’t mean there aren’t some juicy nuggets (not the McDonald’s ones Trump likes) buried in the fine print, it’s just that as far as we can tell, those nuggets taste even worse than the headline numbers (quarter pounder?).

Unless of course you are Gary Cohn, in which case everything is fine:

  • WHITE HOUSE’S COHN SAYS JOBS REPORT NOT DISAPPOINTING

Anyway, analysts are hard at work trying to figure out exactly what this means for balance sheet normalization and for the prospects of another hike this year.

All else equal, the answer seems to be pretty straightforward: when combined with jitters about fiscal policy, it puts the Fed in a rather tough spot both in terms of justifying another hike and even in terms of getting too aggressive with the balance sheet normalization push.

What say you, Archer?…

Shitty

So that’s our common sense take. Here’s Goldman, although as noted above, we’ve already heard from “Goldman”:

We believe today’s employment report may be somewhat less important than usual for the monetary policy outlook, because expectations were low, other US growth data has been firm, and there are several months between now and December to make up for the weakness. Accordingly, we left our Fed probabilities unchanged, with subjective odds of a hike at 55% cumulatively for December.

And below you can find a smorgasbord of soundbites as compiled by Bloomberg, that range from overtly dour to “nothing to see here.” Enjoy…

  • JEFFERIES (Brad Bechtel, interview)
    • Despite the miss on payrolls and average hourly earnings, “I’m not sure it’s going to be the death knell that sends us another leg lower”
    • While the report “helps the very big dollar short in the market,” may not see big moves today given the Labor Day holiday weekend
    • Bloomberg dollar index has support between 1145, 1150 levels; USD/JPY has “big level” of support at 108
    • Average hourly earnings miss more concerning than the headline jobs miss, given its implications for inflation
  • TD SECURITIES (Mark McCormick, email)
    • Jobs miss represents another “incremental piece of weak hard data,” which supports further rotation away from the greenback
    • Markets will be hoping to push the “convergence theme,” which supports EUR, JPY, CAD, and AUD
    • USD/CAD could test June 2015 low near 1.22, though markets will look to BoC next week to asses scope for more downside
  • SEAPORT GLOBAL HOLDINGS (Tom di Galoma, interview)
    • “Nothing positive” in jobs report
    • Data and effects of Hurricane Harvey will keep Fed from hiking again in 2017 and may even give them pause in changing balance sheet policy
    • “Most everybody in the market has been short Treasuries” yet no reason for rates to rise now
      • 10-year Treasury yield headed to 1.9%
  • JANUS HENDERSON (Bill Gross, Bloomberg Radio interview)
    • Phillips curve “appears to be broken”
    • U.S. jobs report for August was “weak,” with avg hourly earnings particularly striking; “inflation, not job growth, dominates central-bank thinking these days”
  • DEUTSCHE BANK (Alan Ruskin, note)
    • Labor report weaker “with no ambiguity”; “only question is about seasonal adjustment problems as this is the 7th consecutive downside miss for August NFP”
    • Data doesn’t change Fed outlook that includes balance sheet adjustments announced this month and a rate hike in December that’s more likely than market is pricing in
    • Report provides no relief for underlying weak USD tone but will be tough to breach and hold 1.2000-1.2070 on EUR/USD
  • PANTHEON MACROECONOMICS (Ian Shepherdson, note)
    • Payrolls and average hourly earnings hit by ”statistical issues”
    • Possible August “seasonal problem” in data, yet “won’t know for sure until the number has been revised a couple times”
    • Fall in unemployment rate “doesn’t matter” as data is ”noisy” and trend is still lower
    • Average hourly earnings low as 15th pay day fell after the survey week, depressing AHE
    • September-October payrolls likely to be “heavily distorted” by impact of Harvey
  • BMO (Sal Guatieri, note)
    • “Despite the mildly disappointing August report and lack of wage pressure, the Fed is still likely to announce reinvestment tapering on September 20 and raise rates in December”
    • “It would likely take clearer signs of labor market softening, or political turbulence, to derail a year-end rate hike given recent signs of momentum in the economy and a view that labor shortages will eventually trigger some upturn in inflation”
  • CAMBRIDGE GLOBAL PAYMENTS (Karl Schamotta, note)
    • Economy lost momentum in the late summer
    • As labor market slack disappears ahead headline employment numbers “are doomed to disappoint”
    • Yet “upward pressure on wages seemingly non-existent”
    • No compelling argument for further Fed monetary tightening now
    • Dollar shorts partially wiped out last week yet further weakness in greenback likely into September
  • MARKET SECURITIES (Christophe Barraud, note)
    • August NFP keeps central bank on track to announce plan in September to shrink its balance sheet, yet reinforces idea that Fed won’t raise rates anymore this year
    • Report “looks disappointing” and suggests labor-market slack is getting absorbed “very slowly,” keeping wages contained and inflation below Fed’s target
  • FTN FINANCIAL (Chris Low, note)
    • August data “paints a picture of tame wages” and “decelerating economy”
    • Fed case for rate hike “was severely undermined today”
    • Rates market not changing Fed rate hike odds may change in months ahead
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