US Open – Mixed NFP report still supports Fed easing cycle, Powell on tap, Oil, Gold, Brexit

Weakness is trickling into the labor market, albeit at a slow pace.  The September nonfarm payroll employment report came in slightly softer than expected at 136,000, a miss of the 145,000 forecast, but still well below last year’s pace of ~200,000 jobs.  What made this report a little mixed was the positive revision we saw for the August reading, snapping a recent string of downward revisions. 

The Unemployment rate fell to 3.5%, the lowest level since 1969, while wage weakness posted the weakest readings in over a year.  

The US trade data highlighted exports jumped to a 5-month high, possibly a sign we were seeing broader demand from Asia.  Imports for consumer goods came in at a record $57.2 billion in August, but markets will quickly remember this data was before the strongest escalations in the US-China trade war. 

Fed Chair Powell’s speech at 2pm could let us know if he thinks the data warrants another rate cut on October 30th.  Powell may choose to wait to see what happens with next week’s high-level trade talks before committing to more easing.  The narrative is not as clear as he may have preferred: The trend in job growth is clearly in deceleration mode, wage growth is at the lowest level in a year, but the unemployment rate just hit a fresh 50-year low. 

The data-dependent Fed has enough ammunition to commit to another rate cut, but they could still hold off on committing to an easing cycle. 

Oil

Oil’s bloodbath is getting a reprieve on profit taking and as traders want to avoid holding bearish positions into the weekend.  The nonfarm payroll report provided a mixed bag that still supports decent growth for the second half of the year.  The US economy is slowing, but possibly not at a fast-enough pace to warrant aggressive action by the Fed.  This report does not bolster hopes for improvement with demand forecasts for crude and we could see selling pressure return next week, if we do not get a positive update in the October 10-11th US-China high-level trade talks. 

Gold

A mixed nonfarm payroll report derailed demand for safe-havens this Friday.  Following the massive warning signs from the ISM services report, expectations were too high for a disappointing payroll number.  The Fed is still expected to cut at least once more this year, but the December meeting remains a toss-up.  The economy is not falling off a cliff and gold could see some softness, but the overall bullish trend should remain intact. 

GBP

The odds that Brexit will be delayed are growing as Boris Johnson promised he will send a letter delaying it if he can’t get a deal done with the EU by October 19th.  The chances of seeing a deal done by then are practically none.  The longer we see elections or Brexit delayed, the greater the likelihood we could start to see the British pound crawl higher.  There still is no strong base case on how this will unfold, but the chances of another referendum or a deal getting done are rising. 

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