By Cees Bruggemans
Proof positive keeps accumulating that recent months have been rather poor for the world economy, with as yet no clear let-up.
Besides querying the downside of Chinese growth data, with especially her poor industry results impacting further on commodity prices which have yet to stem their slide, also further eroding EM prospects (Brazil & Russia reportedly sliding ever deeper into recession), the focus is on America.
The September non-farm payroll was poor at 142 000 (with -59 000 revisions to earlier months), offering up the second consecutive month below 150 000, the first time this happened since 2012. It dropped the quarter monthly average to 161 000, well below earlier expectations. Also, US wage growth eased and yoy remains a subpar 2%.
With labour participation rates still low & core inflation of only 1.8% (headline inflation of 0.2% in coming months likely climbing towards core levels as the y.o.y oil & gas price compressions drop out of the base), with no visible acceleration in sight, the Fed may be inclined to delay yet further any lift-off in rates.
Recent Fed speeches suggest the opposite, that December very much remains in play, but markets are now firmly betting on March 2016. Similarly, BoE lift-off is now seen only for May 2016, the BoJ is expected to increase QE bond buying from later this month, and by December the ECB may be ready to announce its intention to extend its QE bond buying into 2017.
All these actions have the air of a global stay of execution, holding back on monetary tightening or otherwise actively further increasing liquidity injections, and suggesting a marking time for the Dollar. Instead, bonds are back in vogue (for a little longer), and the pressure on commodity prices & risky EM currencies may lift for the duration, until such time greater clarity is obtained regarding global growth & inflation prospects, with China & America the main keys.
All this should also favour the Rand, delaying the next instalment of weakness against the Dollar, instead for longer staying mostly inside its 13-14:$ trading range of recent months, possibly for an extended stay until the world readies for another go at American lift-off.
This will unlikely be delayed indefinitely, especially if US summer strains turn out to be temporary, and her recovery continues to amble along in the manner that it has since 2009.
Cees Bruggemans, Bruggemans & Associates, Consulting Economists