Rise and shine everyone.

Happy Jobs Friday! Today’s focus will be the US Employment Report. We’ve got various labor data during the week and none of it looked as weak. The consensus for NFP is 140k jobs added, with a few outlier estimates such as JPM expecting 125k.

The Unemployment Rate is what the Fed focuses on and their estimate for the year has now been increased to 4.4%. The estimate for last month though is 4.2%, the same as the previous. Average Hourly earnings are expected to drop marginally.

The reaction to the jobs numbers will be interesting.

On the one hand, if we get a stronger report, the market should be relieved that the economy is not as bad as everyone thinks it is. However, this also means that the Fed cuts by 25bps in November, or even skips November if the number is strong enough.

On the other hand, if we get a very weak jobs report, this could spell trouble for the economy but, it also means that the Fed eases more aggressively.

We’ll see which side the market prefers today, but either way, watch out for increased volatility.

Globally, we’re seeing a knock-on effect of the US Dockworkers abruptly ending their strike. ZIM fell -7% last evening. This morning Japanese global shippers were down: Nippon Yusen -9%, Kawasaki Kisen -11%, Mitsui OSK -7% on very high trading volumes (OSK and Kawasaki 4X their 20-day average. EU shipping stocks also declined and there’s potential for weakness in US shipping stocks, as well as, other transports.

Workers Back to Work

The US East Coast port strike has come to a temporary halt, as the Dockworkers Union agreed to pause their first strike since 1977 until January 25, 2025. The Union aims to use this time to negotiate a new contract, following an offer from the USMX port operators alliance, which proposed a 62% wage increase—just short of the union’s demand for a 77% raise. Workers are expected to resume their duties on Friday.

The Union has stated it will continue negotiating unresolved issues until the January deadline. Shortly after the announcement, the probability of a 50bps rate cut by the US Federal Reserve dropped to 31.1% from 35.2%. ZIM Integrated Shipping Services saw the sharpest after-hours decline, falling 7%.

EU imposes 45% Tariffs on Chinese EVs

Meanwhile, Bloomberg reports that the EU voted to impose tariffs as high as 45% on electric vehicles from China. That’s substantial.

I can see why they are doing it. Their homegrown EVs are not doing as well, and factories are being closed. But the oddest fact is that Germany (VW & Benz) actually voted against this.

Markets in mainland China are closed until Oct 08 but, we don’t seem to be seeing an impact on HK equities just yet. HK opened lower after pulling back yesterday but reversed and closed over 2% higher.

On a side note, I actually took a ride in a BYD yesterday and I have to say, I was quite impressed. We’ll see how this whole debacle turns out but, higher protectionist measures are not great and we can only imagine China may retaliate, and perhaps have to stimulate even more.

The RBA could be overdoing it

Australia’s latest economic data showed weakness in August, with household spending falling short of expectations, despite the introduction of Stage 3 tax cuts on July 1. The Statistics Agency noted that spending growth has stagnated at the start of the financial year. Additionally, home loan data for August also came in weaker than anticipated, though retail sales from the same period exceeded forecasts.

More recently, we’ve been wondering if the Reserve Bank of Australia’s (RBA) hawkishness is going too far. Many still expect no rate cuts this year, despite a remarkable easing in inflation and weaker data.

We would keep an eye on the AUD, particularly the AUD/JPY for signs of a downturn.

Chart of the Day - BofA’s Flow Show

Calendars

(news taken from Reuters, FT, Bloomberg; Calendar from Trading Economics)