Stock markets have surged after a slowdown in United States employment growth dampened the prospect of a September interest rate hike by the Federal Reserve.
The latest excuse? The so-so August jobs report.
The health of the labor market, and the broader economy, is an important issue in the USA presidential election. The Payrollsrise reinforces views the economy has regained speed after nearly stalling in the first half of the year.
A sustained slowdown in hiring would raise questions about America's consumer-driven expansion as the Fed debates whether to increase rates as soon as this month, or wait for more signs of faster inflation. Not spectacular, but steady. High-dividend stocks like utilities would benefit from low interest rates as investors seek them out for income.
"It is no longer credible to assert that this economy is underperforming", says Chris Rupkey, chief financial economist at MUFG Union Bank.
Hawkish statements from Fed Chair Janet Yellen and Vice Chair Stanley Fischer last week had increased expectations that the USA central bank is closer to raising rates, though most investors see one increase in December as most likely if the Fed hikes this year.
Unicredit's Harm Bandholz said he now expected the Fed to act in December. "With productivity falling in Q2 alongside weak investment, the Fed may delay pulling the trigger on rate rises, despite strong data elsewhere in the economy". It's why you get practically no interest on your savings at the bank.
Yellen calls this a "gradual" pace of increases. The aggregate bond market, municipal bonds and preferred stocks have been beneficial contributors to performance. That makes it a bit less likely the Federal Reserve will raise interest rates later this year.
"The data-dependent Fed will most likely see the payroll numbers as taking pressure off any immediate need to hike interest rates", Chris Williamson, chief business economist at IHS Markit, wrote in a note to clients. A year ago, it was China.
But in August 2016, the retail sector seemed robust.
But guess what? The U.S. economy continues to hum along through all of these hiccups.
There will never be a flawless time to raise rates. "But it's solid enough to engender a heated policy discussion". China has stabilized (at least for now).
Oil prices rebounded as traders fished for bargain crude after the previous day's heavy losses, and eyed an upcoming meeting to tackle a global supply glut. Watch for other rate-sensitive plays, such as US bank stocks, to get the business after the opening bell.
And, this doesn't even come close to describing what the real problems are.
But it's all based on a wrong idea of "full employment".
And the prospect of lower rates for longer helped buoy markets today and boost the pound. The goal is 2% annual inflation, but it's still under that level.
The moderation in gains, which reflects a calendar quirk, pulled down the year-on-year gain to 2.4 percent from an upwardly revised 2.7 percent in July, which was the largest rise in seven years.
HOME SWEET HOME: Household goods makers traded higher.
"As far as the Fed is concerned, I don't think it's a number that is a major setback for what they ultimately want to achieve, which is a slow and gradual pace for a rate normalization", stated Jason Celente, senior fixed income portfolio manager at Insight Investment in NY.