The market was caught unawares on Friday as the latest job report from the US disappointed, causing investors to rethink the how much the Federal Reserve will look to taper quantitative easing.

The market was caught unawares on Friday as the latest job report from the US disappointed, causing investors to rethink the how much the Federal Reserve will look to taper quantitative easing.

The headline figure revealed that only 169,000 new jobs were added in August, less than the 180,000 the market was anticipating. The unemployment rate fell to the lowest since December 2008, 7.3%, but the participation rate fell to the lowest since August 1978, to 63.2%.  Overall, what this means is that more people have dropped out of America’s work and whilst the number of people who are unemployed has fallen, the number of additional jobs being added by firms isn’t increasing as much as investors would like.

So what does this mean regarding them much awaited decision by the Fed on 18th September? Whilst the forecasts are for the Fed to taper quantitative easing next week, thoughts in the market now are that it will be a slow process with only a reduction of US$10bn on the monthly bond purchases per month.

From the UK, industrial and manufacturing production fell in July but the pound received a boost on Friday, after the National Institute of Economic and Social Research increased the estimates for GDP to 0.9% for the three months leading up to August. Thus we could well see a continuation of sterling optimism.

In other news, Canada’s labour market received a boost as the unemployment rate fell to 7.1% and the participation rate increased to 66.6%, lending support for the Canadian dollar. We also had some positive news from Asia, with Chinese trade balance figures coming in better than expected for August, and Japan’s GDP figures for the second quarter coming in at an annualised rate of 3.8%.

Looking ahead to this week, in focus will be the latest employment figures from the UK, given Mark Carney’s stance on linking interest rate policy to a fall in the unemployment rate to 7%. Retails sales figures from the US for August will be of focus for investors on Friday; given that consumer spending makes up 70% of GDP in the US. Investors will be looking for an improved figure here in the lead up to next week’s decision on quantitative easing.

Key Announcements:

9.30am – EUR – Sentix Investor Confidence (Aug): Expected to improve to -2.8.

13.30pm – CAD – Building Permits (Jul): Expected to rise by 1%.

20.00pm – USD – Consumer Credit Change (Jul): Expected to fall to US$12.5bn.