September 1 – Stock futures firmed following this morning’s highly-anticipated monthly jobs report, believing that it brought the Federal Reserve closer to a pivot in its monetary policy. The VIX fell to a five-week low near 13 following the data release, while the dollar followed Treasury yields lower on the data, trading near 103.3 at one point. Yields on 10-year Treasuries are trading near 4.10% at this hour, after falling to fresh three-week lows near 4.06%, while yields on 2-year Treasuries are trading near 4.78%, which also represents fresh three-week lows. Crude oil prices are up another 1% to fresh three-week highs on reports that Russia will extend its production cuts through October amid expectations that Saudi Arabia will do the same. Prices probed eight-month highs this morning when they traded briefly above $85. The grain and oilseed markets are also higher as we start the new month of trade, while heading into a three-day holiday weekend when Black Sea risks will remain a threat. The U.S. markets will be closed Monday for the Labor Day holiday.
The economy created 187K jobs in August, according to this morning’s monthly jobs report, which came in stronger than analyst expectations of 170K. Furthermore, the July data was revised to 157K jobs created, down from the 187K originally reported. The private sector added 179K jobs in August, up from analyst expectations of 147K, and up from a downwardly revised 155K the previous week. Manufacturing added 16K jobs in August, after losing 4K in July. The unemployment rate jumped to 3.8% in August, up from analyst expectations that it would remain unchanged at 3.5%. The unemployment rate rose because more people returned to the workforce in August, with the labor participation rate rising to 62.8%, up from 62.6% the previous month.
An increase supply of workers into the workforce is one way to ease wage inflation, while the other way is to decrease the demand for workers. In this case, both appeared to be factors in August. That resulted in average hourly earnings rising by just 0.2% month-on-month in August, down from 0.4% growth in July, and down from analyst expectations of 0.3%. Average hourly earnings were up 4.3% year-on-year in August, which fell slightly below analyst expectations that they would remain unchanged at 4.4% growth. The average workweek also stretched a bit longer to 34.4 hours in August, up from 34.3 hours previously. There’s something for everyone in this report, but on net, this report shows progress in the direction that the Federal Reserve wants to see it. The question is, will it be enough? It may be enough in my opinion for the Fed to not act in September, although the Fed may still be concerned about rising inflation in August to be reported in September. I don’t think that we can take a rate hike off the table for November yet, although Fed fund futures trading reduced the odds of a November rate hike to 35% this morning, down from 41% yesterday and down from more than 60% a few days ago.
China took more decisive action to shore up its ailing property sector late Thursday. Today’s edition of China Direct, published by our Shanghai office, notes that China’s central bank and financial regulator jointly unveiled new aids to lower the existing mortgage rate for first-time home buyers, while also lowering the down payment requirements for home buyers. The new rate cuts on 16 trillion yuan ($2.2 trillion) of existing first-time home loans reduce interest payments for households by up to 109 billion yuan ($15 billion), which is the equivalent of 0.2% of annual household disposable income. Down payment requirements for buying a home dropped to 20% for the first home and 30% for the second home, down from 30% and 50% respectively previously. Authorities hope that the policy revisions will stimulate a quick recovery in the property sector ahead of a feared severe credit crunch at the end of the year, as I outlined previously this week, but analysts are skeptical if the root problems aren’t addressed.
Chinese processors crushed 2.16 million metric tons of soybeans last week, marking the seventh consecutive week of crush above 2 mmt. Calendar year-to-date crush totals 61.21 mmt, which is up nearly 10% from the previous year’s pace of 55.89 mmt. Yet, soybean imports over the same time period exceeded crush by 15%, with the surplus soybeans moving into China’s reserves. That translates into 9 mmt of soybeans going into reserves in the first seven months of the year, with the trend continuing in August. However, recent heavy rains at Brazilian ports slowed loadings, which is expected to slow arrival of shipments in September and October. The bigger concern for Chinese buyers longer-term continues to be the problem of moving cargoes coming from the U.S. Gulf through the Panama Canal, resulting in delays and significantly higher costs. That has them continuing to buy a larger portion than normal of their fourth-quarter needs from Brazil at the expense of U.S. market share.
