U.S. jobs: No slack

U.S. jobs: No slack

September’s jobs report came in strong by most measures; India’s energy bill was made worse by a weak currency; USMCA is the new NAFTA

"Banks are restricting credit. They are struggling to deploy their liquidity"
Mario Ravagnan, CEO of an Italian engineering company

U.S. jobs: No slack Despite the unexpectedly low 134k increase in non-farm payrolls, September’s employment report generated yet another record: a 48-year low in the headline unemployment rate (3.7%). Other figures were positive, if less spectacular. Average hourly earnings were up an annualized 2.8% and average weekly hours worked remained unchanged at 34.5.

Treasury yields were relatively unchanged from Thursday’s levels, having already moved up earlier in the week, perhaps reflecting several optimistic speeches by Fed Chair Powell since the Sept. 27 rate decision.  The 30-year yield traded at 3.39%, up a full 18.3 basis points (bps) since the same time a week ago; the 10-year held at 3.22%, up just over 16 bps. All in, the yield curve is unambiguously steeper than a week ago, suggesting that recession might be a bit farther away.

Equities had a more typical good-news-is-bad-news reaction. The Dow Jones Industrial Average was down some 232 points to about 26,395 (0.88%) and the NASDAQ down some 100 points to 7775, about (1.3%). These moves appeared to be in reaction to the rising prospect of three rather than two hikes by the Fed in 2019, in reaction to continued economic strength.

India: Oil price pain The spot price of Brent Crude now stands at about $84.64, up about 35% from this year’s February low of $62.59.  But for India, the rise has been steeper – greater than 50% in Indian rupees, as the currency fell from 63.4 to the dollar to 73.76.  

All the more reason that Friday’s decision by India’s central bank to leave its main policy rate unchanged at 6.50% instead of raising it to compensate for the fall of the currency. Indian stocks fell some 2.25% on the news and the rupee fell 0.52%. It’s unclear whether the central bank believes inflation will stay under control – its GDP forecast is for 7.4% growth in 2018 and 2019, and consumer prices are forecast to end the year up 5% and to be 4.7% in 2019. But in light of current currency and energy prices, those forecasts might look increasingly brave over the next few months. 

Trade: OK to USMCA Completed just in time to beat a self-imposed deadline, the new treaty replacing NAFTA preserved Canada’s place in the agreement and appeared to contain enough changes to satisfy political requirements in all three countries. One clause clearly aimed at China proposes to forbid trade with “non-market” countries; the penalty would be to grant the remaining countries the right to withdraw from the trade pact to form their own.  Importantly, the deal was endorsed by Mexico’s president-elect, Andres Manuel Lopez Obrador, who will take office in January.  Details have yet to be filled in, but many observers expect the major impact will be the existence of the deal itself rather than any of its terms.


All data Source: Bloomberg, October 5, 2018, unless otherwise indicated.


The Dow Jones Industrial Average (DJIA) is an unmanaged index composed of 30 blue-chip stocks, each with annual sales exceeding $7 billion. The DJIA is price-weighted, reflects large-cap companies representative of U.S. industry, and historically has moved in tandem with other major market indexes such as the S&P 500.

The NASDAQ Composite Index is a market-capitalization-weighted index that is designed to represent the performance of NASDAQ securities and includes over 3,000 stocks.

Brent Crude Oil is a major trading classification of sweet light crude oil that serves as a major benchmark price for purchases of oil worldwide. This grade is described as light because of its relatively low density, and sweet because of its low sulfur content. Brent Crude is extracted from the North Sea and comprises Brent Blend, Forties Blend, Oseberg and Ekofisk crudes.

The North American Free Trade Agreement (NAFTA) – Spanish: Tratado de Libre Comercio de América del Norte, TLCAN; French: Accord de libre-échange nord-américain, ALÉNA – is an agreement signed by Canada, Mexico, and the United States, creating a trilateral trade bloc in North America. The agreement came into force on January 1, 1994.

The United States–Mexico–Canada Agreement (USMCA; Spanish: Acuerdo Estados Unidos-México-CanadáAEUMC; French: Accord États-Unis-Mexique-CanadaAÉUMC) is a pending free trade agreement between Canada, Mexico, and the United States, intended to replace the current North American Free Trade Agreement (NAFTA). It is the result of the 2017–2018 renegotiation of NAFTA by its member states, which informally agreed to the terms on September 30, 2018, and formally on October 1. Final ratification and implementation is pending.



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