The dovish signals from the ECB failed to offer lasting support for the global capital markets. Asia shares slumped, with the Nikkei falling to new lows since February and taking out the psychologically important 17k level. The MSCI Asia Pacific Index fell 1%. European bourses are off about 1.75%, with all major industry group under pressures, led by financials.
Weaker stocks and lower US bond yields has sent the yen higher. The dollar tested the JPY120.70 area yesterday and sold off to JPY118.85 in early European activity today. Although a dollar bid has emerged, the JPY119.60 area offers initial resistance.
For its part, the euro stabilized. It fell just below $1.1090 in reaction to Draghi’s dovishness yesterday, but managed to stretch to $1.1160 today. The $1.12 area offers the first serious hurdle on the upside. On the downside, our target next target is near $1.1025.
The focus today is on the US employment report. On one hand, Vice Chairman Fischer seemed to play up the significance at Jackson Hole, while NY Fed President Dudley seemed to de-emphasize it as it will not pick up the latest market and Chinese turmoil. Moreover, as numerous economists have noted, the August US employment report first read is notoriously unreliable.
Over the past four years, the average upward revision for August nonfarm payroll is 90k, about twice the average of the other months. Consider last year, the initial estimate was 142k. This was later revised to 203k. The initial estimate in 2013 was 169k, and that was revised to 238k. While the pattern seems particularly pronounced since the Great Financial Crisis, it predated it. In 17 of the past 20 years, the initial estimate for August has been revised higher.
It seems rather silly to put much stock in any one high volatile report. It is also worth noting the broader labor market conditions. Consider that as of July, full-time positions accounted for 81.7% of all employment, which is the highest since November 2008, though below the 83.2% peak in October 2007. Part-time jobs taken for economic reasons fell 180k in July to 6.3 mln. This is the lowest since September 2008.
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