The Fed and Jobs: Lighting the Way

The Fed and Jobs: Lighting the Way

Job growth casts a favorable light on the FOMC's upcoming rate decision; Theresa May's "Soft Brexit" had a hard landing in Austria; China's individual investors have been moving toward money market funds.


“I will not overturn the result of the [UK Brexit] referendum nor will I break up my country.”
UK Prime Minister Theresa May

The Fed and Jobs: Lighting the Way Last week’s initial jobless claims figures continued their downward plunge, reaching 201k for the week ended September 15, a figure not seen since October 1969. The weekly figures are famous for their fluctuations; nonetheless, the downward direction has been clear so far – and broadly confirms the monthly figures for August (3.9% headline unemployment) and July (job openings continuing to surge past the number of seekers).

Seen in this light, the Fed’s rate decision and economic forecasts (the so-called “dot plot”), to be announced on September 26th could seem foregone.  But market observers and analysts are even more focused on the nuances of the monthly statement and the tone of the press conference than before, seeking insight on the progression, shape and slope of the yield curve overall.

The big question behind those others relates to one of the great economic unknowns: the timing of a presumed recession. And with the FOMC shifting to monthly press conferences come January 2019, the level of scrutiny is likely to increase.
 

Europe: Hard News for a Soft Brexit UK Prime Minister Theresa May’s “soft” version of Brexit was rebuffed at Thursday’s European Union summit in Austria, prompting her to respond sharply upon her return to London, declaring the negotiations to be “at an impasse”, adding, “It is not acceptable to simply reject the other side’s proposals without a detailed explanation and counter-proposals” and describing the stakes “as nothing less than the “integrity of the UK”, possibly referring to proposals dealing with the Ireland/Northern Ireland border. Among the financial markets’ reactions: the British pound fell as much as 1.5% and 1.8% vs. the euro and the dollar on the news, to €1.11 and $1.31 respectively.1
 

China: Prudent Investors After some individual investors’ experience with stocks and once-soaring wealth management products, many are placing their investments in money market funds, according to the Asset Management Association of China – to the tune of some 8.6 trillion yuan ($1.3 trillion), rivalling the amount of deposits by individuals in the Industrial and Commercial Bank of China Ltd., considered the world’s largest lender by assets.  

Rather than investing in stocks and other unsecured investments, these funds invest in bank deposits as well as sovereign and other government-related bonds, which are substantially less exposed to the vagaries of financial markets.

This popularity has prompted some managers of these funds to impose limits on deposits due to the aggregate size of the sector and has made this category a major force to be reckoned with in this regulated sector of China’s financial markets.

 


All data Source: Bloomberg, as of Sept 20, 2018, unless otherwise specified.

1 Source: Bloomberg, Sept 21, 2018, 12:00 noon, ET

 

Definitions:

The Federal Open Market Committee (FOMC) is a policy-making body of the Federal Reserve System (Fed) responsible for the formulation of a policy designed to promote economic growth, full employment, stable prices, and a sustainable pattern of international trade and payments.

The Federal Funds rate (Fed Funds rate, Fed Funds target rate or intended Federal Funds rate) is a target interest rate that is set by the FOMC for implementing U.S. monetary policies. It is the interest rate that banks with excess reserves at a U.S. Federal Reserve district bank charge other banks that need overnight loans.

 

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