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Weak US labour growth, indecisive Fed

By Patrick Higgins  |  01/09/2017 15:06
The dollar, Dow/Nasdaq futures, and bond yields rebounded earlier today after initial declines this morning in response to the rather disappointing release of US job data for August.
NFP job growth lessened to 156,000.  June and July saw 399,000 NFP jobs created in comparison.  The unemployment rate also notched up 0.1% to 4.4%, despite the positive jobs growth.  The increase in unemployment can be tied down to the considerable reduction of pace within the labour market and its growth.
Despite the slight drops, the data is still in the green and should encourage the Fed to continue with its tapering reduction programme and to start selling off its portfolio of $4.2 trillion's worth of government bonds after its Sept. 19-20 policy talks.
However, the lower than expected rate of wage growth could cause Yellen and the Fed to think twice before deciding if it is wise to raise interest rates for a third time before the end of this year.  Average wage per hour rose only by 0.1%, instead of 0.2%.  Comparing this anemic rate to the 0.3% growth observed in July, there is a slight cause for worry.  Additionally, there are concerns that the weak rate of wage growth will challenge the feasibility of sustaining the recent boom in consumer spending, which brought about the largest level of GDP growth seen in 2 years during Q2 of this year.
Similalry, the probability of the third rise in Fed interest rates is 36%, according to CME Group's FedWatch programme.
US stock futures had fallen immediately after the release of the jobs data but rebounded within minutes once traders were able to assess the totality of the data.  All three major US stock indexes were expected to open 0.3% higher than yesterday this morning, and are projected to have record gains for the 2nd straight week.
The dollar likewise slipped accordingly to the data, to 1.1979 EUR= and 109.57 JPY= initially this morning, but recovered slightly to $1.1906 and 110 respectively.  It is now valued at $1.1868 EUR= and 110.2600 JPY= as of 3:10 PM BST.


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