Markets Brace for US Unemployment

Daily Analysis - 06/10/2016

ADP Disappointment Puts Greater Pressure on NFP Data


With Thursday being relatively quiet on the economic front, the focus has firmly shifted to tomorrow’s US nonfarm payrolls figures that analysts expect to reignite expectations for a December interest rate hike from the Federal Reserve.

Preliminary Indicators Suggest Slowing Job Creation

Wednesday was marked by resounding disappointment for the outlook for private sector jobs after payroll processor ADP reported lower job creation than anticipated. Forecasts had called for 166,000 jobs added during September, with the actual figure printing at 154,000 and August’s figure revised lower to 175,000. Although a figure over 150,000 new jobs is still positive for the economy, it marks the lowest reading since April and worst print in years, hurting speculation of December rate hikes. The next major upcoming event is Friday’s nonfarm payroll data due from the Bureau of Labor Statistics. Economists polled by Reuters forecast the creation of 175,000 new jobs in September. A stronger than expected payrolls data could see markets price in a 70.00% likelihood of a December hike. Also in focus will be any upward revision to August's tepid gains of 151,000 jobs.


Global Debt at All Time High

Global debt has soared to an all-time high of $152 trillion dollars, more than double of where it stood at the start of the century, the IMF warned on Wednesday. The debt pile at the end of 2015 accounted for almost 225.00% of the global gross domestic product, up from 200.00% in 2002, further confirming the trend that borrowings have easily managed to outpace economic growth during the past decade and half.  The warning was specifically directed at governments that have been forced into deficit spending as a result of weak economic fundamentals and lower revenue collections.  Furthermore, the IMF believes that Central Banks are shouldering too much responsibility for sustaining global growth, a development that may eventually backfire if left unchecked.  The result of low interest rates has been a borrowing binge globally that has expanded the probability of another debt bubble bursting.


Crude Pulls Back from June Highs

Crude oil prices pulled back in early Thursday trade after hitting their highest level since June during the prior session. Sentiment was buoyed by a dip in US onshore crude oil stockpiles, with the US Energy Information Administration reporting that inventories fell last week by 2.98 million barrels to 499.74 million barrels - the third straight week of unexpected draw downs.  Despite declining storage levels, uncertainty surrounding OPEC’s planned output cut prompted investors to book some of those profits, with Brent futures down $0.25 to $51.61 per barrel as of last reporting. US West Texas Intermediate futures lost $0.20, falling to $49.63 per barrel.  With WTI prices closing in on the psychologically key level of $50.00 per barrel, a period of consolidation cannot be ruled out before the market decides its next move. However, the broad trend remains bullish amid the general lack of incentive to boost production.


German Manufacturing Orders Recover

Orders for German manufactured goods recovered in August, helped by a revival in both domestic and Eurozone demand according to data released by the country's Ministry of Economics earlier in the session.  Breaking down the figures shows that factory orders increased 1.00% from the previous month’s 0.30% rise. Economists surveyed by The Wall Street Journal had projected a mere 0.20%, adding to the optimism of the number.  Euro Area demand climbed by 4.10% during August, followed by a 2.60% climb in domestic demand while foreign orders were modestly negative for the period.  The latest data comes after relatively subdued manufacturing orders for a large part of 2016. The surprise pick-up, coupled with improving business sentiment, points to a modest recovery in industrial activity.  Analysts however caution that due to quite a few public holidays in August, further data points need to be reviewed before drawing any concrete conclusions.


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