It felt quite like old times in the last week for this particular columnist, with all the market action worth commenting upon due at the end of the Western week, and in this case on the Gulf’s weekend.
Given that the key item playing on investors’ minds right now is when the US Fed will raise interest rates — with knock-on effects feasibly in all directions — the monthly jobs report in the States was liable to carry some decisive influence on the crucial matter of timing, and the prospect of global market shudders.
These data have been the most important international economic indicator for decades, at least in terms of characterising the world cycle, remaining so despite the hurtling ascent of the Chinese economy, whose aura has taken quite a hit recently.
Many analysts’ weeks are spent effectively twiddling thumbs in anticipation of what the employment numbers are going to impart as a message to digest on that regular, fateful Friday. A blizzard of interpretation and trading responsiveness then immediately materialises.
Not least among the scenarios to address is always whether the relative strength or weakness of the jobs numbers will have an effect mostly on the short or long end of the yield curve — considering that they can react in opposite ways to the same piece of information, for complex reasons not worth repeating here. Moreover, the extent to which that net reaction (besides the rough ballpark inhabited by the data themselves) has been discounted in advance.
Portfolio repositioning
In sum, a lot rests in the short term on that bulletin and how it’s dissected, and a lot further still in the longer term on what in fact it really signifies, however viewed at the time.
In the middle of summer, and without any other intervening prompts to grab the attention, GCC markets will have joined their counterparts wondering whether anything new will arise from the statistical release to spark the imagination and prompt portfolio repositioning.
By the time of the announcement, however, the Gulf’s standard working week was already over, with markets shown to be either mixed or slightly on the defensive. Composite bourse indices were a touch negative, with softness in the Saudi and Dubai exchanges upon the regional financial implications of oil remaining relatively weak, not unrelated to China’s comparative woes.
Bonds in the local credit arena have been quite directionless too, nodding clearly to the overall unease attached to fixed-income at this transitional stage globally between a long bull market and pending bearishness.
On this occasion, the US’s employment report turned out pretty much in line with expectations, creating only a ripple of reaction in currencies, stocks and the Treasury market.
An increase in so-called nonfarm payrolls of 215,000 in July was effectively in line with the 225,000 that consensus anticipated, and kept the rolling six-month average on the gentle upward tilt it has occupied since 2010, as the telltale indicator behind the recovery’s profile and the Fed’s painstaking deliberations.
Hourly earnings figures replicated the same sturdy theme, pointing also to the related issue of modest inflation pressure.
Consequently, analysts are now leaning in favour of the Fed hiking rates next month (rather than potentially in December), although the central bank has found reasons recurrently to delay what may be foreseen as the inevitable, or at least desirable in terms of officially marking the end of the global financial crisis.
Global signals
The very real fear of how markets will react, and indeed of the capacity of world growth (financed so ridiculously cheaply in recent years) to withstand even initial tightening, has been staying its hand for what seems like an interminable period.
We’ll soon find out one way or another — and it will really matter, for the Gulf as much as anyone. With markets twitchy, and Saudi Arabia turning to debt issuance to shuffle the sources of government outlays, the change of season ahead should bring economic and financial matters very much to the fore again.
In advance of the Fed’s decision, attention will zoom in on other global signals, such as imminent Chinese trade data, and the weekly and monthly oil production and inventories data in the States indicating whether shale will eventually succumb as Opec might have hoped.
Brent’s slippage below $50 (Dh183.50) evidently carries further seeds of doubt for the region, leading to a generalised feeling that a $50-60 band might become the norm for the foreseeable future, although a research note from Barclays suggests the dip in outlook “has been overdone”. A firming dollar, rate-related, does little to assuage the concern.
There is a saying that all politics is local, in terms of people’s parochial perceptions of their daily needs and wants. It might equally be said that all economics — even though framed by national perspectives — is international in a globalised, commodity-dependent world. Our view of it has to be broad.
