- US labor market continues to improve only at a modest pace (+150K to +200K), but August report disappoints handily.
- Participation Rate falls – lowest since August 1978 – leading to decline in Unemployment Rate.
- June and July NFPs revised lower by -74K.
= USDJPY BEARISH
The improved patch of US economic data earlier this week proved to be a red herring – again, as the August market report was disappointing all-around. The headline figure at +169K was well-below expectations, and the drop in the Unemployment Rate was aided by a shrinking labor force.
The report is especially disappointing in context of recent economic data. Just yesterday, the ISM Services (AUG) report improved to its best level in nearly seven-years, and the Employment component of the report jumped to levels in recent seen when NFPs near +200K. Similarly, with Initial Jobless Claims holding near their post-2008 crisis lows, further signs of labor market resilience were expected.
Overall, the report takes away more than it offers for the second month in a row; in the sense that it means that the decision to taper QE3 in September has become that much more difficult for the Federal Reserve. While a September taper is still likely, the scope of which is probably diminished to a $10B cut in US Treasury purchases (rather than $15B).
Here’s the key data driving price action ahead of the US cash equity open on Friday:
- Change in Nonfarm Payrolls: +169K versus +180K expected, from +104K (revised lower from +162K)
- Change in Private Payrolls: +152K versus +180K expected, from +127K (revised lower from +161K)
- Unemployment Rate (U3): 7.3% versus 7.4% expected, from 7.4%
- Underemployment Rate (U6): 13.7% from 14.0%
- Participation Rate: 63.2% from 63.4%
USDJPY 1-minute Chart: September 6, 2013
Charts Created using Marketscope – prepared by Christopher Vecchio
Following the releases, the USDJPY dropped from ¥99.75 to as low as 98.79, but had recovered to 99.20 at the time this report was written. US Dollar weakness was generally spurred on by a drop in US Treasury yields as investors recalibrated their QE3 taper expectations: the 10Y yield slumped from 2.960% to as low as 2.862% in the minutes following the release.
--- Written by Christopher Vecchio, Currency Analyst
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