US nonfarm payrolls: total failure, albeit with glimmer of hope

 In the morning today, we discussed the chances that the data on the US employment could be downbeat. From my viewpoint, there were preconditions that the actual data would end up rather weak. In practice, the report was not just poor – it turned out to be a total failure. The US economy added a mere 235K jobs in August, much weaker than the expected 750K growth. Thus, the actual figure was three times as low as the projected growth. Nevertheless, the employment growth in the previous month was upgraded to 1,053 million from 943K in the flash estimate. However, the figure for August is still very low. Notably, there is a glimmer of hope for stock and currency markets.

The US dollar tumbled across the board in response. In fact, the fall could have been steeper. Perhaps, this will happen until the trading day is over. By the moment of writing this article, EUR/USD has climbed 40 pips and GBP/USD also gained the same 40 pips. In other words, we cannot say that the crucial report on the US labor market triggered market turbulence. Still, everything can happen later today. I'm telling you about the immediate market response. Nevertheless, the market looks rather boring.

When it comes to the US stock market, the key stock indices have been unaffected by the poor nonfarm payrolls. The S&P 500, the Nasdaq, and the Dow Jones are still trading at their historic highs, looking ready to extend their winning streak.

In the context of such developments, we can make a conclusion that the likelihood of tapering monetary stimulus in September is much less in light of the downbeat nonfarm payrolls. The odds are that Federal Reserve will decide to wait for a couple of months to have an opportunity to assess macroeconomic data for September. Besides, the US central bank wants to analyze inflation dynamics for the last few months. In case consumer inflation eases its acceleration, this will assure the Federal Reserve to refrain from scaling down the bond-buying program in the near future.

Another scenario is that the regulator could announce in September that it would begin reducing the volume of bond-buying, for example, from December. The latest nonfarm payrolls do not exclude the possibility that the US Fed will not discuss QE program at the policy meeting in September. Of course, there are different options, but the likelihood of tapering QE in the near time is much lower now. Let's wait for the inflation data for August which is due on September 14.

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