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Loads of Data = loads of confusion

Published Monday, September 7th, 2015

Hang on to your hats, there is every chance that this week will see another turn of the market roller coaster. The US is closed today, China returns after a 3-day break (-2.5% today) and risk sentiment took a turn for the worse on Friday. Last week demonstrated that loads of data equals loads of confusion and ended with no-one any the wiser about whether the Fed will raise interest rates later this month. Unfortunately the deluge of data does not point in the same direction constantly giving something for both bulls and bears. It is like herding cats.

Friday’s non-farm payroll illustrates the problem. Should the disappointing figure of 173,000 be interpreted as really 252,000 because according to Goldman Sachs August revisions have averaged 79,000 over the last 5 years? Revisions to June and July put the 3 month average at 221,000 and the one year average at a healthy 247,000. The US has created 16 million jobs in the last 66 months, the longest run of gains on record. Unemployment has fallen to a seven and a half year low of 5.1% but the employment ratio is still only just above 60%, wage increases subdued and inflation elusive.

We are told by experts in such matters that Fed fund futures show that expectations of a Sept rate increase, which a month ago were close to 50% and then fell back towards 20%, have moved up again to around 35% following the NFP release. That does not seem to be a big enough move to explain the substantial fall in stock indices on Friday which took the S&P to a 3.4% loss on the week, the FTSE 100 to -3.3% and Eurofirst 300 to -3%. Perhaps it reveals that were still expectations that a rate increase would be delayed into 2016 and a 5.1% unemployment level makes an increase by December a certainty even if September is still a maybe.

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Posted by David Hufton