Strong economic numbers balanced by looming rate hike

In this week’s video update:

• Dig into the good news inside a lackluster U.S. jobs number.
• See how low jobless claims balance out a likely December rate hike
• Brexit is back: Did the British pound survive PM May’s announcements?

Recording this episode of Market Week in Review on the first Friday of the month meant that Adam Goff, managing director, Investment Practice, had a lot of data to crunch. The short story Goff told to host Todd LaFountaine, program director, Capital Markets Insights, was that the U.S. economy had plenty of good news, but markets reacted with little change.

On the economic side, the September U.S. jobs number reported 156,000 new non-farm-payroll jobs—an underwhelming headline, but, according to Goff, one with lots of positive underlying dynamics. Wage growth increased by an additional 0.2 percent, building an annual clip of 2.7 percent. The Institute of Supply Management (ISM) Manufacturing Index was above the breakeven point, pointing toward growth in the economy. In addition, the U.S. jobless claim number of 249,000 was very low. But the four-week average was even lower. According to Goff, it was the lowest we’ve ever seen.

Equity markets had little response to this, likely maintaining a balancing act between this good economic news and the expected December rate hike by the U.S. Federal Reserve. That same rate-hike probability likely led to a rise in the rate for ten-year U.S. Treasury bonds.

Brexit is back.

U.K. Prime Minister Theresa May answered two questions about Brexit this week, and Goff said the British pound suffered because of her answers. On the question of timing, May indicated that Article 50 will be triggered by the end of March 2017, beginning negotiations on exiting the European Union (EU). And on the question of a hard or soft exit, May signaled that she would prioritize control of immigration. The EU has stated that this type of action would result in tougher negotiations around access to EU markets. The result? The British pound dropped to US$1.18 per pound, then rebounded to US$1.24.