Markets Key on Wage Gains in September Jobs Report as Global Bond Yields Surge
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Global investors will be scouring Friday's September employment report for any signs that wages are continuing to rise in the ongoing domestic boom, with bond investors re-setting bets for faster rate increases from the Federal Reserve as inflation pressures mount in the world's biggest economy.
The consensus forecast for Friday's headline job creation figure from the Bureau of Labor Statistics, due at 8:30 am eastern time, is difficult to gauge, however, given the impact of Hurricane Florence, which hammered the Carolina coast early last month, and a series of data releases this week that point to surging private employment growth. That said, somewhere between 190,000 and 200,000 new jobs were likely added last month, keeping pace with the 207,000 monthly average so far this year, while the headline unemployment rate slips to 3.8%.
"With the ADP figures exceeding market expectations, there is speculation over the U.S. non-farm payrolls following a similar pattern," said FXTM analyst Lukman Otunuga. "A blockbuster NFP number complemented with signs of accelerating wage growth could stimulate expectations over the Fed adopting a more aggressive approach towards monetary policy normalization."
The pace of growth in average hourly wages, which jumped by an annual 2.9% last month -- the biggest gain in nine years -- despite a small number of working days in the calendar is indeed likely to be the market's focus later today.
The U.S. wage figures, as well as the strongest reading for the ISM non-manufacturing index in 21 years last month, alongside solid job additions from the ADP employment report earlier this week, have raised expectations for a stronger reading on wages that, in concert with rising gasoline prices and the potential impact on consumer goods from the U.S.-China trade war, has bond investors fretting over inflation in a way we haven't seen for nearly two years.
The U.S. dollar index, which benchmarks the greenback against a basket of six global currencies, moved closet to a 10-week high as it traded at 95.87 while 10-year yields held at 3.23%, the highest since 2011.
Long-term Treasury bond yields were a few basis points lower at 3.35%, but remain notably about the 3.25% threshold that some investors have indicated as a 'breakout' level to sustain higher rates in the years ahead.
Benchmark 10-year U.K. government bonds, known as gilts, traded at 1.69%, the highest since January 2016 while in Germany, benchmark 10-year bund yields jumped to a four-and-a-half month high of 0.553%.
There are more than a few signs that traders are keying on, as well, with respect to rising wages: Amazon Inc. (AMZN) - Get Report said earlier this week that it would boost wages for its 250,000 employees to $15 a an hour, starting next month, a move that had U.S. Chamber of Commerce President Thomas Donahue suggesting a $15 minimum wage is something his group should look at "in a serious way".
The National Federation of Independent Businesses, as well, has said that 26% of its members are keen to add more staff, suggesting both a difficulty in finding qualified workers and the need to increase wages to entice them.
President Donald Trump's decision to slap tariffs on $250 billion worth of China-made goods, and his threat to add levies on $267 billion more, is also starting to seep its way into rising consumer prices, according to several U.S. corporate earnings reports, as is the rise of domestic gas prices, which are hovering at a seasonally-adjusted four year high of $3.92 per gallon as global crude price hit similar highs thanks to looming sanctions on the sale of Iranian crude, which kick in next month.
"The economy is on course for 3% growth and inflation pressures are on the rise," noted ING economist James Knightlely. "While the Fed has dropped the term "accommodative", monetary policy can hardly be described as restrictive and as such, we look for a December rate rise while the Fed's assessment that three rate hikes are likely next year seems sensible. "