Why the dollar rallied and US equites fell post NFP

Markets were both sides of the Atlantic traded lower as trade tariff jitters and concerns over the Fed rising interest rates weighed on equities.

The highly anticipated non-farm payrolls showed that 201,000 jobs were created in the US in August. This is slightly better than the 191,000 that had been forecast. The rate of unemployment remained steady at 3.9% an 18-year low. However, it didn’t tick down to 3.8% as analysts had anticipated, yet this didn’t bother investors as the wages aspect of the report hogged the spotlight. 

As with recent non-farm payroll reports, wage growth is closely watched. Today’s data shows that wage growth jumped 0.4% month on month in August and 2.9% year on year. Up from 0.3% and 2.7% year on year in July. 

This could finally be the turning point ending the wage mystery of the labour market; tightening but not translating through to higher wage growth, suggesting that there was further slack in the market. Today’s figures suggest that the labour market has now tightened sufficiently for wages to started growing at a stronger pace.

 Given wages are a leading indicator for inflation, the expectation is for inflation to pick up and the Fed to potentially steepen its path of tightening. 

Obviously one strong reading should be taken with a pinch of salt and dollar traders will be chomping at the bit to see if this level of wage growth can be sustained for a second month.

The dollar unsurprisingly charged northwards following the release, however the US equity market wasn’t as pleased with the results, as the potential for higher interest rates means higher borrowing costs for businesses. 

This added to the already negative sentiment in the market on the back of trade jitters.

FTSE dragged down by the miners

The FTSE was under pressure for a fourth straight session, dropping over 1% before recovering slightly towards the close. 

Weaker miners fearing trade wars, a stronger pound - thanks to encouraging Brexit comments from Michel Barnier - and weak retailers, following disappointing store sales data from BDO pulled the FTSE to a low of 7227. 

The BDO report showed that shops suffered the worst August in 3 years with store sales dropping for the 7th straight month, amid a challenging environment for consumers. 

Meanwhile miners traced metal prices lower as investors awaited news from the White House over more tariffs. 

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