Surprising Increase in US Unemployment

Weekly Report - 09/10/2016

Precious Metals Slump as Safety Assets Sold Amid Heightened Rate Hike Speculation


The latest US payroll figures proved a letdown for financial markets anticipating a rebound in job creation during the month of September.  Nevertheless, alongside the August figure being revised higher, was the raised probability of action on interest rates in December.

Last Week

Although the news wires were largely dominated by the talk of US labor market fundamentals heading into the final two monetary policy decisions of 2016, the other major development on the horizon that was shaking financial markets was the talk of a UK “hard exit” from the European Union.  Haven assets in particular were sold throughout the week as the US dollar rose on more hawkish commentary from key voting policymakers of the Federal Reserve. Fed Fund futures which give an indication of the probability of changes to policy are now pricing in a 60.00% probability of a rate hike during the month of December, up from just above 50.00% earlier in the week.  The momentum higher in the dollar was evident throughout the week, with the US dollar index rising to the highest levels since July before retreating following the disappointing payroll figure of 156,000 jobs added.  Aside from US fundamentals, the main attention was focused on the UK’s “Brexit” negotiations.  With Europe looking increasingly punitive in its stance, trying to punish the UK for deciding to exit, the Pound continued to sell-off considering the rampant anxiety amongst investors about the outlook, briefly crashing over -6.00% on Friday before recovering.


The Week Ahead

Although Brexit talks and developments pertaining to Deutsche Bank’s questionable liquidity will be considerable components of the news throughout the week, a rate decision from the Bank of England on Thursday will add some fireworks.  Although the Bank of England is unlikely to cut rates at this meeting, they may hint at future accommodation, especially amid the increasing likelihood of less access to the European single market.  Aside from the UK monetary policy announcement is the release of the US FOMC Meeting Minutes from the September decision.  The minutes will likely contain useful hints about the policy committee’s feelings towards the outlook and sentiment towards rates, giving more insight as to how the next two decisions will shape up.  Moving west towards Asia, China is set to dominate the upcoming events with reports due on trade and inflation.  The trade surplus is expected to remain intact, however, both exports and imports are looking to retreat from recent recoveries, heightening the possibility of a sustained trade slowdown.  While producer prices for China are expected to remain in negative territory, consumer prices inflation is expected to show modest gains, reducing pressure on the People’s Bank of China to accommodate policy further.


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