However, a deeper dive into the data revealed that the Delta variant played a significant role in the disappointment as the leisure and hospitality sector, which over the past couple of months had been a big contributor to the employment market recovery, actually went into reverse with a decline of 42,000 jobs.
Consequently, we see this as a goldilocks data release, as it isn’t too low (i.e. the economic recovery is still intact), but it is low enough to delay the Fed’s plans to start tapering QE. In fact, we believe this completely removes the possibility that the Fed will start tapering this side of its November monetary policy meeting – and when it does eventually start tapering, it could be so slow that the Fed is still buying bonds for the bulk of 2022.
Elsewhere, the Japanese equity market had a particularly strong week after the very unpopular Japanese Prime Minister, Yoshihide Suga, announced that he would not run for re-election as the leader of his Liberal Democratic Party at the end of September – and as this effectively ends his premiership, there is hope that a new leader may introduce a big government stimulus package to help rebuild the Japanese economy.
Looking ahead this coming week, we have a break from US data, as our focus moves towards the UK and Eurozone, with UK GDP for July; UK industrial and manufacturing production data; and an ECB monetary policy meeting. We also have Chinese CPI and PPI.
Investment Management Team