US markets closed higher on soft jobs report

03 Sep 2016 Evaluate

The US markets closed higher on Friday, after the closely watched August jobs report came in weaker than Wall Street’s consensus estimate, suggesting that the Federal Reserve may hold off on hiking interest rates when policy makers meet later this month. Wall Street assigned a 1-out-of-4 chance of a hike in September and a 46% chance of a rate increase in December, according to a gauge of federal-funds futures by the CME Group. On the economy front, the US trade deficit slid almost 12% in July to $39.5 billion as a surge in soybean shipments pushed exports to a 10-month high. The smaller deficit in the first month of the third quarter is a good sign for GDP. US exports rose 1.9% to $186.3 billion to mark the biggest advance in two and a half years. Soybean exports tripled to $5.2 billion, largely accounting for the increase. US imports, on the other hand, fell 0.8% in July to a seasonally adjusted $225.8 billion. Imports fell even though the price of oil rose for the fifth straight month and hit the highest level per barrel since last September. The trade deficit has been little changed for the past year. The average deficit in the three months from May to July was $42 billion.

The US added 151,000 jobs in August, slowing sharply from earlier in the summer and probably pushing an expected increase in US interest rates toward the end of the year. The unemployment rate was unchanged at 4.9%. A broader measure of unemployment known as U6 was flat at 9.7%. Average hourly wages rose 0.1% to $25.73. Hourly pay increased 2.4% from August 2015 to August 2016, also a bit weaker than expected. Total employment gains for July and June, meanwhile, were barely changed. The government stated that 275,000 new jobs were created in July instead of 255,000. But June’s gain was cut to 271,000 from 292,000.

Meanwhile, Richmond Fed President Lacker stated that the Federal Funds rate should be considerably higher than it is now, although he also stated that he had not made his mind up about a September rate increase. Lacker added that the economy will need even higher interest rates, unless jobs growth slows considerably. Lacker was also optimistic that inflation would continue to rise gradually following a 1.8% annual increase in the core PCE deflator so far in 2016. Although benchmarks should not be adhered to slavishly, Lacker warned of the danger of keeping rates well below the benchmark rate with the risk that rates would subsequently need to rise sharply if inflation got out of control.

The Dow Jones Industrial Average added 72.66 points or 0.39 percent to 18,491.96, Nasdaq was up 22.69 points or 0.43 percent to 5,249.90, while S&P 500 gained 9.12 points or 0.42% to 2,179.98.

The Indian ADRs closed in green; Tata Motors was up 0.99%, Dr. Reddy’s Lab was up 0.90%, HDFC Bank was up 0.27%, Infosys was up 0.20% and Wipro was up 0.12%.

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