Will US jobs numbers pave the way for the Fed’s cut?

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Will US jobs numbers pave the way for the Fed’s cut?

The Federal Reserve is rushing towards an announcement that it will soon scale back its massive stimulus package, and Friday’s jobs report could set the stage for such a move as early as November.

The US central bank has said it will buy $ 120 billion worth of treasury bills and agency mortgage-backed securities each month until it sees “further substantial progress” on two goals: an average inflation of around 2% and a maximum employment rate.

Soaring consumer prices have long meant that the first of these targets has been met, but many Fed officials have indicated they want to see further gains in employment before moving forward with it. plans to start reducing or “decreasing” support.

Fed Chairman Jay Powell said at the last monetary policy meeting that the jobs threshold was “almost met” and that he did not need to see a “knockout, super report” , super strong “for September” to feel like that the test has been satisfied “.

Economists polled by Bloomberg expect 488,000 new jobs to be created for the month, more than double the surprisingly small job gains seen in August. Only 235,000 jobs were then added, well below the approximately 1 million jobs created in June and July and well below the 733,000 jobs expected by economists.

Analysts said the slowdown in job growth stemmed not only from the surge in Delta cases, which hampered business activity, but also from worsening labor shortages.

Patrick Harker, chairman of the Philadelphia Fed, said at a recent event that the Fed’s purchases “were necessary to keep markets functioning during the acute phase of the crisis. But since we are still faced with a labor issue, the issue is on the supply side, not the demand side. “

“You can’t walk into a restaurant or drive down a shopping street without noticing a sea of ​​’Help Wanted’ signs. Asset purchases don’t do much – or anything – to improve that, ”Harker said. Colby Smith

Will the pound continue to weaken?

The pound fell to its lowest level of the year last week against a resurgent dollar as investors feared the UK’s supply chain crisis could undermine the strength of the country’s economic recovery.

The cuts came despite a sharp rise in UK government bond yields after the Bank of England surprised markets by saying it could raise interest rates as soon as the end of the year to contain the high inflation.

The British pound rebounded slightly from last week’s 2021 low against the US dollar of $ 1.341, ending weakness at $ 1.3562.

But the fall in the pound has left it undervalued, according to Mark McCormick, head of foreign exchange strategy at TD Securities, who is betting on its rebound against the euro.

“The market talk liked the pound on a so-called BoE hawkish perspective, then hated it as inflation got out of hand,” he said. “The truth is probably somewhere in the middle. “

Some analysts believe the pound’s recovery against the dollar could be trickier. The dollar hit its highest level in more than a year against a basket of other currencies last week, boosted by the prospect of a tightening US Federal Reserve monetary policy and concerns about global growth, which tend to push investors towards the relative security of the global reserve currency.

“I don’t think the dollar will retreat significantly until you get an improvement in risk appetite globally,” said Jane Foley, head of currency strategy at Rabobank. “For that you need a stronger outlook for growth, and for now the direction of the journey is towards weaker data.” Tommy stubbington

How will Australian policymakers react to soaring house prices?

Australia’s central bank will almost certainly hold rates at its meeting on Tuesday, as falling iron ore prices and falling retail sales and employment data offsets the impact of a scorching real estate market.

“The consensus is no change on rates and nothing on quantitative easing,” said Shane Oliver, chief economist of AMP Capital.

At its meeting last month, the Reserve Bank of Australia announced that it would cut bond purchases from A $ 5 billion per week to A $ 4 billion, but would extend the program until “at least the mid-February 2022 ”, citing“ increased uncertainty ”due to the epidemic of the Delta variant of Covid-19.

But a group of Australian regulators, including the RBA, said last Wednesday that house prices “are still rising rapidly in most markets” with credit growth expected to remain strong.

The specter of credit growth outpacing increases in household incomes “would add to the medium-term risks the economy faces” even if lending practices remain “sound”, regulators said.

In the medium term, a Bank of America research report said Australian economic data is expected to “deteriorate” to “reflect the lockdowns”, but a “strong rebound is expected thereafter”.

The RBA has said it will not raise its interest rate until inflation is “lastingly” within a target range of 2% to 3%, a condition it believes will likely not be met. before 2024.

Oliver said mixed data from the region underpinned this scenario. “Falling iron ore prices, weakness in China and concerns over Evergrande all support the Reserve Bank in taking an accommodative approach to interest rates,” he said. Anthony Klan