August nonfarm payrolls highlight week of mixed data
Corporates | Kennett Square, PA
As the market continued to react to Federal Reserve Chair Powell’s remarks at the Jackson Hole Economic Symposium, August nonfarm payrolls grabbed headlines after falling short of expectations. Elsewhere, data came in mixed as the delta variant continues to weigh on increased demand.
Labor market update
After Federal Reserve Chair Powell’s remarks last week about needing to see continued improvement in the labor market prior to changing any policy, August numbers arrived in disappointing fashion. The economy added only 235,000 jobs in August, coming in well below expectations of 720,000. The 235,000 jobs added marks the lowest number since January’s 233,000, and broke a four-month streak of improving nonfarm payrolls data. The ADP employment report, which accounts for jobs created in the private sector, also came in below expectations in August. The month saw an increase of 374,000 private sector jobs, below the forecast of 600,000. Most of the new jobs came from the leisure and hospitality sectors. However, it wasn’t all doom and gloom in the labor market, as weekly initial jobless claims came in at 340,000, the lowest total since March 2020. The unemployment rate also fell in line with expectations to 5.2% in August, marking the lowest rate since March of last year. Rates rose slightly on the nonfarm payrolls and unemployment news on Friday after remaining range bound (between 1.27% and 1.31%) for most of the week. Long-term rates have risen from the relative lows we saw during the summer months of July and August, but many Corporates are still looking at pre-issuance hedging as a good way to mitigate risk on future fixed-rate debt issuance, especially given where rates are compared to the year-to-date highs we saw in March and April.
(Related insight: Read "Managing interest rate risk on future debt issuances")
Data came in mixed elsewhere last week as the delta variant still weighs on increased demand. The consumer confidence index dropped to 113.8 in August, its lowest point in six months. The second consecutive month of decreasing confidence may indicate the economic recovery is starting to slow as autumn approaches. On the other hand, the ISM Manufacturing Index, based on a survey of purchasing managers at over 300 manufacturing firms, jumped to 59.9% in August, outperforming expectations of a 58.6% reading. This marked the 15th straight month of growth in the economy, as any reading above 50% on the Index signifies growth. Equity indices were mixed last week, as the Dow Jones fell (accentuated by a drop on Friday after the weak nonfarm payrolls report), while the S&P and Nasdaq hit record highs.
The dollar weakened a bit last week after Chair Powell made remarks indicating that rates would not be raised in the near future. Although the U.S. dollar weakened against a number of currencies, EUR and GBP made the most significant gains, ending the week up .70% and .73% compared to the USD, respectively.
(Related insight: Read "Six key steps to implementing an operational FX program")
Crude oil prices increased late in the week as the east coast of the United States continues to recover from the destruction caused by Hurricane Ida. Approximately 1.7 million barrels per day of oil production is still being affected as damage to offshore platforms in the Gulf of Mexico is preventing crews from returning to work. U.S. crude inventories fell by 7.17 million barrels for the week ending August 27, compared to expectations of a 3.09 million barrel decrease. Aluminum prices also continued to climb, reaching $2,696/ton to close the week.
The week ahead
After a deluge of economic data last week, the holiday-shortened week looks much quieter. Investors will certainly have their eyes on this week’s initial jobless claims figure after the poor nonfarm payrolls data for August. The Bureau of Labor Statistics will release August’s producer price index later in the week.
Subscribe to receive our market insights and webinar invites
Chatham Hedging Advisors, LLC (CHA) is a subsidiary of Chatham Financial Corp. and provides hedge advisory, accounting and execution services related to swap transactions in the United States. CHA is registered with the Commodity Futures Trading Commission (CFTC) as a commodity trading advisor and is a member of the National Futures Association (NFA); however, neither the CFTC nor the NFA have passed upon the merits of participating in any advisory services offered by CHA. For further information, please visit chathamfinancial.com/legal-notices.
Transactions in over-the-counter derivatives (or “swaps”) have significant risks, including, but not limited to, substantial risk of loss. You should consult your own business, legal, tax and accounting advisers with respect to proposed swap transaction and you should refrain from entering into any swap transaction unless you have fully understood the terms and risks of the transaction, including the extent of your potential risk of loss. This material has been prepared by a sales or trading employee or agent of Chatham Hedging Advisors and could be deemed a solicitation for entering into a derivatives transaction. This material is not a research report prepared by Chatham Hedging Advisors. If you are not an experienced user of the derivatives markets, capable of making independent trading decisions, then you should not rely solely on this communication in making trading decisions. All rights reserved.21-0238
Our featured insights
Banks tightened and the market rallied: what’s going on?
The European Central Bank (ECB), Bank of England (BoE), and U.S. Federal Reserve (Fed) all raised their respective benchmark rates last week. The ECB raised rates by 50 basis points to a key rate of 2.5% on Thursday and signaled another 50-basis-point hike was coming at the next meeting in March....
GDP, PCE take steps in the right direction ahead of Fed meeting, China’s reopening leads to commodities shift
December metrics for GDP and inflation came in at promising levels, keeping market expectations consistent ahead of this week’s FOMC meeting. China’s reopening leads to increased economic activity, including increased demand for metals and oil, while natural gas struggles due to unexpectedly warm...
Retail sales, producer price data suggest cooling economic activity
Markets responded positively to declining PPI and retail sales figures, suggesting that U.S. economic activity, and notably inflation, is slowing. Investors are pointing to the data as another piece of evidence that the Federal Reserve will be able to soften its hawkish stance on rate tightening...
Labor market remains stoic as U.S. inflation slows, dollar weakens
The Federal Reserve appears to be in control of inflation after the most recent consumer price index report. Questions linger regarding future rate increases and the subsequent impact on the labor market. The dollar continues its march down from last year’s highs.
2023 corporate treasury trends
Corporate treasury and accounting teams face a daunting list of concerns as they plan for 2023. Inflation at multi-decade highs, a war in Europe for the first time in 75 years, global central bank tightening, a roller coaster ride in on equity prices, and recession fears all pose challenges to...
U.S. jobs market remains strong, nonfarm payrolls data suggest slowing inflation
December payrolls surpassed expectations Friday morning as the U.S. added 223,000 jobs to the economy. While the labor market remains strong, investors noted that wage inflation appears to be easing. On the commodity front, oil and natural gas markets lagged to start the year due to global demand...
Markets mixed as focus turns to 2023
Markets were largely quiet around the holidays, with strength in the jobs market and signs of reduced inflation helping to provide some risk-on sentiment. At the same time, the rise in COVID cases in China put downward pressure on demand forecasts for next year.
The market is fighting the Fed yet again
After inflation, retail sales, empire manufacturing, and the Philadelphia Fed business outlook all came in below estimates last week, the market — as evidenced by Treasuries and forward curves — broadly disagrees with the Fed’s interest rate outlook.