US net job creation in September was disappointing, and the market sized up the news to resume the selling of the dollar, which had begun in the second half of last week in earnest. The euro and Swiss franc have risen to new highs for the year. US bond yields have dropped and the stock market has turned better bid in electronic trading.
However, the data is not really that surprising. As we have pointed out, much of the private sector and Fed data released in recent weeks has shown softness, and the recent trend in non-farm payrolls has slowed. The 3-month average was lower than the 6-month average, which was lower than the 12-month average. Between the closure of the government and the downdraft in a number of economic reports, the Fed's decision not to taper last month seems prescient.
The September non-farm payrolls grew 148K, while the August figure was revised up 24K to 193K. If the August revision is taken into account, the September disappointment was minor. That said, the July figure was revised down by 15K, leaving the 2-month revision at 9K and leaving the September adjusted figure below 160K vs expectations for 180K. Moreover, net job growth in Q3 was the weakest 3-month period since August 2012.
The headline figure itself was fattened by the government sector. It added 22K jobs, which leaves the private sector with a net gain of 126K jobs. Still, Obama is the first president in memory that has overseen a decline in government jobs.
Manufacturing added 2K workers, and this does not bode well for manufacturing output. Construction added 20K workers and this points to a rise in construction spending. Perhaps the brightest spot in the report was the decline in the unemployment rate to 7.2%, despite no change in the participation rate.
The data reinforces the shift in expectations already underway toward pushing the Fed's tapering to March 2014 from December 2013. The drop in the US 10-year bond yield has spurred a narrowing of the yield premium over Japan. At 191 bp, it is now the lowest since mid-August. The fact that the dollar is essentially unchanged against the yen probably says more about the yen's weakness, perhaps as the short leg of carry trades, than the dollar's resilience.
The euro marched quickly to almost $1.3750, but was stopped short amid talk of option-related offers. Sterling has lagged and has not even taken out last week's high near $1.6225. The Aussie has move to new highs since early June, poking through the $0.9700 level. These currencies look stretched on an intra-day basis and it would not be surprising to see a consolidative phase emerge.
See more from Marc Chandler at his blog Marc to Market.
No positions in stocks mentioned.