Source: AFP
September’s US employment data released on Friday shows the labour market remains very tight, keeping the pressure on the Federal Reserve to continue lifting its fed funds rate in outsized 75bps hikes.
Source: Bank of Singapore, Bloomberg.
Payroll rose by 263,000 last month, only slowing modestly from August’s large 315,000 gains. The unemployment rate also fell back from 3.7% to 50-year lows of 3.5% as the chart shows. Labour market tightness was compounded by the participation rate dipping from 62.4% to 62.3%
The strength of the US jobs market led to average hourly earnings rising by 0.3%month-on-month (MoM). Wages are growing by 5.0%YoY still despite the Fed’s rapid interest rate hikes this year
Source: Bank of Singapore, Bloomberg.
September’s payrolls report thus shows the US labour market remains too hot for inflation to return to the Fed’s 2% target without further large increases in the fed funds rate from 3.00-3.25%.
The Fed can keep aggressively tightening monetary policy to curb inflation as the near-term risks of recession are low. The ‘Sahm Rule’ in the second chart shows that the onset of each US recession since 1960 has seen unemployment - on a three-month moving average basis - rise by 0.5% points from its low over the preceding 12 months. The US jobless rate would therefore need to increase from 3.5% now to 4.0% within the next 12 months for the US to face recession.
With US consumer price inflation still very high at 8.3% in August and unemployment at just 3.5% in September, we forecast the Fed will raise its fed funds rate again by 75bps in November for the fourth time in a row this year. We thus do not expect the Fed to ‘pivot’ to a slower pace of rate hikes until December at the earliest when we anticipate a 50bps rate increase and a further 25bps in February to lift fed funds to 4.50-4.75%.
The hawkish Fed is set to keep investor sentiment fragile. On Friday after the jobs data, the S&P 500 fell 2.8%, 10Y Treasury yields jumped to 3.88% and the safe-haven USD rallied. We expect risk assets to stay under pressure before November’s Fed meeting and see the USD rising further to 0.95 and 7.25 against the EUR and CNY respectively in the next three months.
Important information
This product may only be offered: (i) in Hong Kong, to qualified Private Banking Customers and Professional Investors (as defined under the Securities and Futures Ordinance); and (ii) in Singapore, to Accredited Investors (as defined under the Securities and Futures Act) and (iii) in the Dubai International Financial Center to Professional Clients (as defined under the Dubai Financial Services Authority rules) only. No other person should act on the contents of this document.This product may involve derivatives. Do NOT invest in it unless you fully understand and are willing to assume the risks associated with it. If you have any doubt, you should seek independent professional financial, tax and/or legal advice as you deem necessary.
Please carefully read and make sure that you understand all Risk Disclosures, Selling Restrictions, and Disclaimers. This document must be read together with the relevant Prospectus & Offering Documents &/or Key Fact Statement.
Disclaimer
This document is prepared by Bank of Singapore Limited (Co Reg. No.: 197700866R) (the “Bank”), is for information purposes only, and is not, by itself, intended for anyone other than the recipient. It may contain information proprietary to the Bank which may not be reproduced or redistributed in whole or in part without the Bank’s prior consent. It is not an offer or a solicitation to deal in any of the investment products referred to herein or to enter into any legal relations, nor an advice or by itself a recommendation with respect to such investment products. It does not have regard to the specific investment objectives, investment experience, financial situation and the particular needs of any recipient or customer. Customers should exercise caution in relation to any potential investment. Customers should independently evaluate each investment product and consider the suitability of such investment product, taking into account customer’s own specific investment objectives, investment experience, financial situation and/or particular needs. Customers will need to decide on their own as to whether or not the contents of this document are suitable for them. If a customer is in doubt about the contents of this document and/or the suitability of any investment products mentioned in this document for the customer, the customer should obtain independent financial, legal and/or tax advice from its professional advisers as necessary, before proceeding to make any investments.
The Bank, its Affiliates and their respective employees are not in the business of providing, and do not provide, tax, accounting or legal advice to any clients. The material contained herein is prepared for informational purposes and is not intended or written to be used, and cannot be used or relied upon for tax, accounting or legal advice. Any such client is responsible for consulting his/her own independent advisor as to the tax, accounting and legal consequences associated with his/her investments/transactions based on the client’s particular circumstances.
This document and other related documents have not been reviewed by, registered or lodged as a prospectus, information memorandum or profile statement with the Monetary Authority of Singapore nor any regulator in Hong Kong or elsewhere.
This document may not be published, circulated, reproduced or distributed in whole or in part to any other person without the Bank’s prior written consent. This document is not intended for distribution to, publication or use by any person in any jurisdiction outside Singapore, Hong Kong, or such other jurisdiction as the Bank may determine in its absolute discretion, where such distribution, publication or use would be contrary to applicable law or would subject the Bank and its related corporations, connected persons, associated persons and/or affiliates (collectively, “Affiliates”) to any registration, licensing or other requirements within such jurisdiction.
