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LGT Navigator: The Fed remains challenged in the face of contradictory signals from the labor market

October 11, 2021

The latest US labor market data disappointed expectations of strong employment growth on the one hand, but on the other supported hopes the Federal Reserve is not likely to be in any hurry to scale back its expansionary monetary policy in view of the slow employment recovery. In this week, capital markets will now focus on the start of the corporate earnings season in the US.

The Fed remains challenged in the face of contradictory signals from the labor market

With 194'000 new jobs created in September, analysts' expectations of an average of 500'000 new jobs were not met by a long shot. This is the weakest monthly gain since September 2020. At least, however, employment growth in the two previous months of August and July was revised upward by a total of 169'000 jobs. On the other hand, the unemployment rate surveyed in a separate poll surprised on the upside, falling from 5.2% in August to 4.8% in September. The consensus had assumed only a moderate decline to 5.1%. Average hourly wages also presented a stronger-than-expected picture, rising +0.6% month-on-month (consensus +0.4%) and +4.6% year-on-year. Overall, the latest data on labor market developments in the US should not put additional pressure on the Fed to taper its quantitative monetary policy as soon as possible.

On the New York Stock Exchange, opinions neutralized in relation to the further direction of the US central bank after the disappointing employment growth in September. The Dow Jones Industrial closed virtually unchanged at 34'746.25 points (-0.03%) on Friday, posting a gain of +1.2% in the weekly balance. The S&P 500 slipped -0.19% to 4'391.34 points before the weekend, while the Nasdaq technology exchange registered daily losses of about half a percent.

In Asia, most stock exchanges started the new trading week on a positive note despite the lack of impetus from Wall Street. The focus now shifts to the corporate reporting season in the US, which begins this week. The focus of interest will be mainly on the impact of disrupted supply chains and rising production costs. JPMorgan Chase will kick off earnings season on Wednesday. 

ECB President Lagarde warns against overreaction

According to the assessment of the eurozone's top monetary watchdog, Christine Lagarde, the European Central Bank (ECB) is unlikely to overreact to the current elevated inflation rates. Premature tightening of monetary policy would jeopardize the economy's recovery from the corona crisis, Lagarde said in an interview with a German magazine. The increased price pressure is mainly due to special effects such as disrupted supply chains or the withdrawal of the temporary VAT cut in Germany, she said. The ECB therefore expects inflationary pressure to ease again next year. However, Lagarde said the central bank will closely monitor possible second-round effects, especially from higher wages.

German export engine stutters

German exports fell by -1.2% in August compared with the previous month. Here, too, the background is supply bottlenecks and acute material shortages. In total, goods worth EUR 104.4 billion were exported in August, an increase of +14.4% compared to the same month in 2020, which was marked by the corona crisis. According to the BDI industry association, problems in global supply chains, high logistics costs and trade disputes are clouding the economic outlook and subsequently having a significant impact on exports.


Economic Indicators October 11

MEZ Country Indicator Last period
08:00 GE Wholesale Prices (August, y/y) +12.3%
10:00 IT Industrial Production (August, m/m) +7.0%


Earnings Calender October 12

Country Company Period
SZ Givaudan 9-Months Sales
SZ Lonza Investor Day
FR LVMH Q3 Sales


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Source: LGT Bank (Switzerland) Ltd.

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