Chile’s big hike, ADP and ISM exemplify labor weakness, bitcoin rises

The stock market showed no signs of slowing down this summer and many investors are growing cautious over what will happen in September.  The majority of Wall Street is still very bullish on US stocks as there is just too much liquidity, infrastructure stimulus is around the corner, and reopening momentum should return now that the Delta-fueled COVID-19 surge may have peaked in the US.

The S&P 500 index is hovering near record highs again as investors refrain from doing much of anything until Friday’s payroll report.  After Friday, we will have a strong understanding if a November taper is in the cards.

ADP

Weakness in the labor market is becoming a consistent theme across the Fed Regional surveys.  Employers are still having trouble filling vacancies and that will complicate the economy from hitting the Fed’s substantial progress goal.  Private payrolls increased by 374,000 in August, a big miss of the 625,000-consensus estimate.

ISM

The ISM manufacturing report provided a good outlook for the economy as manufacturing and new orders rose more than expected, while prices paid declined.  The persistent struggle in finding and keeping staff is a problem that won’t get rectified anytime soon unless wages go up even more.

The headline ISM manufacturing reading rose to 59.9, better than the prior reading of 59.5 and the consensus estimate of 58.5.  The good news was that production, new orders, and backlogs are all growing.  Prices paid fell to 79.4, much lower than both the 84.0 analysts’ forecast and prior month’s reading of 85.7.  The bad news was that employment is contracting, falling from 52.9 to 49.0.

The ADP and ISM reports both highlight the problems employers are having with filling vacancies and that could start to raise the question of whether the economy will make substantial progress in the labor market over the next few months.

Chile central bank hikes rates by 0.75%

The Chilean peso is surging after the central bank delivered a massive rate hike, the largest in two decades.  Chile’s central bank was expected to raise rates by 50 basis points to 1.25%, but hotter-than-expected inflation forced the bank to deliver a bigger hike.  The unanimous decision for a 75-basis point hike to 1.50% solidifies the belief that the policy rate is headed above 3.00%.

Chile had a good second quarter and expectations are high for that to continue this quarter.  Inflation will be key for Chile and if pricing pressures remain above the central bank’s target of 3%, plus or minus one percentage point, faster rate hikes may happen.  Next week’s CPI reading will be key in dictating how much further the peso will strengthen.

Bitcoin

Bitcoin is rallying as the dollar falls to a two-week low, but cryptocurrency traders have laser eyes for ethereum.  Ethereum is all the buzz in the cryptoverse and the US 4,000 level would be huge for momentum traders.

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