As Howard Penney alluded to in this morning’s Early Look, today is all about the employment report. As always, what happens on the margin matters, and the rate of change in August unemployment is significant. As the chart below shows, at 9.7%, unemployment accelerated 30bps after declining 10bps to 9.4% in July. Additionally, on an absolute basis, 9.7% makes a higher high.
The jump in unemployment is bearish for the US dollar. Perversely, if the dollar is down everything priced in dollars will reflate, to a point. The reality is that stagflation is being discounted due to expectations in joblessness and for this reason you’re seeing gold up 4.6% on the month.
The equation is easy: as unemployment rises, growth will stagnate. We believe this number plays into our Q4 INFLATION ROTATION call, or an increase in reported inflation in Q4.
The dollar is currently testing our trading level. As a reminder, our immediate term TRADE line is at 78.51. We’ll continue to monitor the USD and how the market digests this unemployment number.