Daily Agenda: Markets Focus on U.S. Jobs Data

U.S. employment data expected to show uptick in payrolls; producer prices drop in the euro zone; a deadline approaches for a debt-ceiling agreement in Washington.

Banking reports on a folded sheets and pen

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The major theme of market narratives today will be the September employment report from the U.S. Department of Labor. September nonfarm payrolls came in at an increase of 142,000 jobs this past month, significantly below consensus forecasts for an increase in non-farm payrolls of 201,000 workers, the report will be the final major data point in advance of the Federal Open Market Committee meeting later this month. Despite increasing arguments for Fed tightening to begin, Treasury markets have postured defensively in recent sessions with ten-year Treasury-note yields falling to the lowest level in over a month at 2.01 percent on Thursday as some investors bet deteriorating conditions abroad will stay the hand of policymakers once again.

Producer prices decline sharply in Europe. The cost of goods at the factory declined in the euro zone by 2.6 percent year-over-year or 0.8 percent for the month of August, according to data issued by Eurostat Friday. Even excluding volatile energy inputs, the index fell by 0.5 percent versus the same month in 2014, reinforcing deflationary concerns raised by weak consumer inflation levels, reported on Wednesday.

Unemployment rises in Japan. The headline unemployment rate in Japan rose slightly to 3.4 percent in August, according to data released today by the Japan Statistics Bureau. A survey-based ratio of job openings to job seekers for the month prepared by the Institute of Labor indicated that demand for workers remains high, however, with 123 current open positions for every 100 applicants.

U.S. government faces new funding deadline. A letter sent yesterday by Treasury Secretary Jacob Lew to House Speaker John Boehner indicated that Congress must resolve the debt ceiling by November 5 to avoid an interruption of some federal government operations. Boehner’s resignation complicates negotiations over adjusting the debt ceiling because a number of his fellow Republican members of the House of Representatives ideologically oppose such an increase.

Weak global manufacturing data. Markit global manufacturing PMI released today for September revealed a decline for the headline index to 50.6 for the month, the lowest the index had registered since 2013. Critically, export orders contracted in most geographies while input and output costs also fell.

Portfolio Perspective: Good News for Japan’s Retail Sector Hidden in Data — Sean Darby, Jefferies

A glance through recent Japan macro releases would hint that the economy might enter into a technical “recession” in Q3 despite corporate profits growing over 20 percent in 2Q. Depending on how an investor reads through the Japan flow-of-funds data, the Japanese household sector could be saving circa 12 percent of GDP. Wage data has improved but not markedly so despite the tighter labor markets. Japan cash earnings increased in mid-2014 but failed to hold onto their 2 percent annual rise as bonus payments remained subdued.

However, real incomes are growing and have turned steeply into the black. The drop in gasoline prices has meant that real disposable income is growing around 2 percent year-over-year versus -8 percent year-over-year 12 months ago. Moreover, part-time cash earnings are still growing while the number of jobs advertised grew at nearly 30 percent year-over-year mid-2015. Although this is not translating into better sales numbers for restaurants etc. at the moment, it has meant a very big jump in operating margins.

Sean Darby is chief global equity strategist for Jefferies in Hong Kong.

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