Markets Disappointed On Less-Than-Impressive NFP Data

Chances for a U.S. interest rate increase have reduced after news that the labour market has not strengthened as expected, and also weighed on the U.S. stock markets. The Nonfarm Payrolls (NFP) data released on Friday by the Department of Labour showed that the world’s strongest economy added 142,000 new jobs during September. While the data were stronger than the previous month’s result of 136,000, it fell considerably short of estimates calculated by analysts for a much stronger 203,000. Upward revisions were also expected for the NFP results of July and August, but those were revised downwards to 223,000 and 136,000 respectively and only provided more evidence to speculations that the Federal Reserve might not proceed with an interest rate increase before the end of the year. According to a separate household survey, the unemployment rate remained steady at 5.1%.

The September NFP data increase were led by an increase of the health care sector by 34,000 jobs, while 31,000 new positions were filled in the professional and business services and also the retail sector has expanded by 24,000 jobs.

The NFP data also inflated fears that the halt to the global economy’s growth, mainly due to China’s economic slowdown in recent months, began having a domino effect on the U.S.. The data also appear to be in contrast to earlier comments by the Federal Reserve (Fed) Chairwoman Janet Yellen that the U.S. economic outlook appears solid and that she and the rest of the policymakers are not anticipating some adverse economic developments to significantly derail the Fed’s policy.

The U.S. labour market has been growing stronger for a long time but now it looks like that the impressive tempo faded during the summer period. The percentage of America’s work force who are currently employed or looking to for a job has decreased to 62%. And those who are on a payroll have remained on a flat salary and worked for less hours per week.

The global economic slowdown is widely believed to be led by China’s sluggish growth. According to data released on Thursday, the manufacturing Purchasing Managers Index (PMI) increased marginally in September to 49.8 in relation to the previous month’s 49.7 but remained below the 50-level and signalled the manufacturing sector’s contraction for a second month in a row. Despite the tiny PMI increase, there is evidence that the Chinese economic conditions are not growing with the desired strength and there are forecasts that growth in 2015 will not meet the government’s expectation of 7%.

The stock markets reacted negatively to the below-expectations NFP data as the Dow Jones endured 2.3% losses, while the S&P 500 at the same time dropped by 2.4%. Both indices however erased all losses by the end of the day as they ended trading with 1.3% and 1.2% gains respectively. On a weekly basis the U.S. stock markets moved upwards as both the Dow Jones and S&P 500 increased by 1.5% and 1.7% respectively.

Even after the weaker-than-expected NFP results, there is still a large community of investors who still believe that the Fed might raise interest rates before the end of the year, and forecast losses for the EUR/USD. This week’s main events directly linked to the possibility of an interest rate increase are:

The U.S. ISM Non-Manufacturing PMI, expected today (Monday 05 October) at 14:00 GMT.
The U.S. Trade Balance, expected on Tuesday 06 October at 12:30 GMT.

While the results of these expected economic data are not likely to influence the Fed’s decision on the same level as last week’s NFP data, they could well give policymakers something to think about in case they come out stronger than expected.