- The US economy has gained 336,000 jobs in September, nearly double the expectations.
- Federal Reserve hawks have ample ammunition for resisting looser policy.
- US Dollar is set to prevail through next week's inflation report.
The leg may have been off the accelerator, but it is on it once again – September's Nonfarm Payrolls shocked to the upside with a whopping gain of 336,000. They provide enough fuel for the Federal Reserve (Fed) to keep its rates higher for longer – and perhaps even a rate hike just after Halloween. September's employment report boosts the US Dollar. Any meaningful recovery in Gold and stocks will have to wait.
At 336,000, the US economy gained nearly double the early expectation of 170,000, and this came on top of upward revisions worth 119,000.
It is essential to note that in recent years, September's jobs reports were revised higher. This fact is not lost on Federal Reserve officials nor investors. It could get even higher.
Investors fear the Federal Reserve's tight monetary policy more than they cheer economic strength. To fulfill its full employment mandate, the bank looks at other labor-related figures. This week's Initial Jobless Claims remained depressed near 200,000, and the JOLTS Job Openings report for August shocked markets by surging again toward the 10 million mark. These figures add to the bullish picture of the labor market.
The bank's other mandate is price stability – killing inflation. On this front, the increase of only 0.2% MoM in Average Hourly Earnings – and 4.2% YoY – is good news. Will it serve as a silver lining for stocks? Companies may pay lower salaries, but they still struggle with higher borrowing costs.
The September Consumer Price Index (CPI) report is due on October 12. Until then, I expect the US Dollar to remain dominant, taking advantage of minor data beats and barely falling when figures miss estimates.
The Greenback's strength is also a result of weakness elsewhere in the world. Europe has been nearing stall speed, and despite some recent stability, China is still struggling with its real-estate crisis, which has ramifications beyond its borders.
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