The long-awaited American jobs report did nothing to break the tedium of U.S. markets.
While equities advanced after the data, the S&P 500 Index remained squarely within the same 1.5 percent band it has now occupied for 37 straight days. That’s the tightest since 1964 for the gauge, with volatility hovering near a two-year low. Things were no different in the currency and bond markets, where benchmark 10-year notes got stuck in the narrowest trading range in almost a decade in August.
Bulls cheered the fact that U.S. payrolls grew at a slower but solid pace in August, which is consistent with a steady pace of improvement in the world’s largest economy. Meanwhile, bears said the moderation in wages just wasn’t encouraging enough. Without any definitive conclusion, the data kept one thing very much alive — the Federal Reserve debate. Analysts were split on whether the numbers give officials green light to boost rates in September for the first time in 2016, while futures traders slightly pared bets on a move.
Traders are pricing in a 30 percent chance the central bank will raise borrowing costs at its September meeting, down from 34 percent before the jobs data, though the probability earlier slipped as low as 20 percent. The first month with better-than-even odds of a hike is December.
Those wagers have influenced trading with stocks, bonds and the dollar amid a spate of mixed economic data and comments from central bank officials. Financial markets were taken aback on Thursday by weak manufacturing numbers, after other reports pointed to a recovery on the heels of still-robust consumer spending. While Fed Chair Janet Yellen said last week that the case for an increase in borrowing costs has strengthened, wagers on a hike receded even before the jobs figures.
Stocks
Since the stock gauge reached a record in mid-August, it’s been stuck in neutral amid Fed rate-hike speculation and lackluster economic data, including a reading yesterday showing manufacturing activity contracted last month. The benchmark index hasn’t seen a 1 percent move in either direction for 39 days, the longest such streak in more than two years.
Anyone hoping the jobs report would mark an end to the “dullest period for the U.S. equity market in modern times are likely to be disappointed,” Michael Shaoul, the chief executive officer of Marketfield Asset Management in New York, wrote in a note to clients. “Overall, the report will do nothing to settle the ongoing debate within the FOMC regarding the need for or timing of interest-rate increases.”
The Stoxx Europe 600 Index rallied 2 percent, the most since June 29, with the advance gathering pace after the U.S. jobs report. Consumer-related companies and utilities led the gains on Friday, with Germany’s RWE AG and Dutch Unilever up more than 4 percent. Drugmakers rebounded after falling to their lowest prices since June. Miners climbed with commodities, while energy producers rallied the most in two months.
The MSCI Emerging Markets Index climbed 1 percent as a rally in commodities spurred gains in stocks of raw-material exporters from Russia to Brazil and South Africa.
Bonds
Treasury two-year note yields, the coupon securities most sensitive to Fed policy, rose one basis point, or 0.01 percentage point, to 0.79 percent, according to Bloomberg Bond Trader data. Benchmark 10-year note yields advanced three basis points to 1.60 percent. They’ve been stuck in a range of 1.45 percent to 1.63 percent since July 15.
Bill Gross says August’s jobs data ensure the Fed will raise interest rates this month. Pacific Investment Management Co., his former firm, says the central bank will wait.
“September is on — I don’t think it’s 100 percent on, but I think it’s close to 100 percent,” Gross, manager of the Janus Global Unconstrained Bond Fund, said in an interview with Bloomberg radio. “If these types of jobs don’t do it, I’m not quite sure what does.”
Pimco, the firm Gross co-founded and left in 2014, is taking the opposite stance.
“It’s kind of a weak report across the board, so it doesn’t change the view we’ve had that September is very unlikely,” Scott Mather, chief investment officer of U.S. core strategies and a managing director at Pimco, said in a Bloomberg Radio interview. “But then of course that makes December much more likely after that.”
Futures traders see about a 60 percent chance of a move by December.
Currencies
The Bloomberg Dollar Spot Index, which tracks the currency against 10 major peers, was little changed. The greenback added 0.3 percent to $1.1163 per euro, and advanced 0.7 percent to 103.93 yen.
The pound is enjoying its longest run of gains since before Britain voted to leave the European Union as data signal the economic consequences of the decision may be less dire than some analysts feared.
Sterling climbed to its highest level in a month versus the dollar, extending its advance into a third week, after a U.K. construction index surged the most since 2013 as activity picked up across the board. The Canadian dollar gained the most in five weeks after the nation’s July trade deficit narrowed more than economists predicted, adding to evidence the Bank of Canada is less likely to lower interest rates.
Commodities
Oil snapped four days of declines as Vladimir Putin said he’d like Russia and OPEC to reach an oil output freeze apart from Iran. West Texas Intermediate for October delivery climbed 3 percent to $44.44 a barrel on the New York Mercantile Exchange.
The Russian president said in an interview that he may recommend completing the plan when he meets with Saudi Arabia’s Deputy Crown Prince Mohammed bin Salman at the Group of 20 summit in China next week. A freeze should exclude Iran until that country raises production to pre-sanctions levels, he said. OPEC’s crude output rose to a record in August, climbing by 120,000 barrels a day.
Crude climbed 7.5 percent in August amid speculation that talks in Algiers at the end of September may lead to an agreement to manage the market. A cap on production would be positive, Saudi Arabia’s Energy Minister Khalid Al-Falih said in an interview last week, though he ruled out an output cut. A freeze deal between members of the Organization of Petroleum Exporting Countries and other producers was proposed in February, but a meeting in April ended with no final accord.
“This is another strong sign that the odds of a production freeze are going up,” Phil Flynn, senior market analyst at Price Futures Group in Chicago, said by telephone. “My sense is that we are very close to a deal because the major players seem to be on board with it.”
Gold, silver and copper also paced gains in commodities.
Bloomberg: September 2, 2016
