Dear PGM Capital Blog readers,
In this weekend’s blog edition we want to discuss some of the most important events that happened in the global capital markets, the world economy and the world of money in the week of October 3, 2016:
- USA Federal Debt increased with 1.4 Trillion USD in FY-2016.
- British Pound plummet to 31-year low.
- USA Jobs report of October 7, 2016.
USA FEDERAL DEBT INCREASED WITH USD 1.4 TRILLION IN FY-2016:
On Monday, October 3rd, data released from the USA Treasury revealed that the county’s federal debt in FY-2016, — that ended on Friday September 30 — increased with US$1,422,827,047,452.46.
By the close of business on Sept. 30, 2016, the last day of fiscal 2016, it had climbed to US$19,573,444,713,936.79 as can be seen from below chart.
According to the Census Bureau’s latest estimate, there were 118,215,000 households in the United States as of June. That means that the one-year increase in the federal debt of US$1,422,827,047,452.46 in fiscal 2016 equaled about US$12,036 per household.
The total federal debt of US$19,573,444,713,936.79 now equals about US$165,575 per household.
BRITISH POUND PLUMMET TO 31-YEAR LOW:
On Friday, October 7, in early trading in the morning in Hong Kong, the British pound tumbled dramatically in chaotic trading that included a flash drop in early Asian hours and sustained falls in London as can be seen from below chart.
Late morning in Britain, it was down 3% against the U.S. dollar.
The sharp drop in Asia came amid worries about the U.K.’s exit from the European Union that were accelerated by computerized trades, market watchers said.
The pound fell more than 6% just after 7 a.m. Hong Kong time on Friday to as low as US$1.1819 from just above US$1.26, before recovering above US$1.24, according to Thomson Reuters data. But it took another dive in London hours and was down well below US$1.23.
USA JOBS REPORT OF OCTOBER 7, 2016:
On Friday, October 7, at 8:30 am EST, the USA Bureau of Labor Statistic, reported that the total non-farm payroll employment in the country increased by 156,000 in September, and the unemployment rate, which has been stuck at 4.9 percent since the spring, ticked up slightly to 5 percent.
Highlights:
- Professional and business services employment rose by 67,000 in September and has risen by 582,000 over the year.
- Health care added 33,000 jobs in September. Ambulatory health care services added 24,000 jobs over the month, and employment rose by 7,000 in hospitals. Over the past 12 months, health care has added 445,000 jobs.
- Employment in food services and drinking places continued to trend up in September (+30,000) and has increased by 300,000 over the year.
- Retail trade employment continued to trend up over the month (+22,000). Within the industry, job gains occurred in clothing and clothing accessories stores (+14,000) and in gasoline stations (+8,000). Over the year, employment in retail trade has risen by 317,000.
- Labor force participation rate, at 62.9 percent, and the employment-population ratio, at 59.8 percent, changed little.
PGM CAPITAL ANALYSIS AND COMMENTS:
USA Federal Debt:
With an estimated nominal GDP for 2016, for the USA of 18.5 Trillion US-Dollars, the on balance sheet Federal Dept to GDP of the country was at the end of FY-2016 106% of its GDP.
However the debt growth of 1.42 Trillion US-Dollars in FY-2016, amounts to roughly 7.5% of the entire US economy as can be seen on below chart.
By comparison, the Marshall Plan, which completely rebuilt Western Europe after World World II, cost $12 billion back in 1948, or roughly 4.3% of US GDP at the time.
Above chart shows also that this increase in absolute terms is the THIRD largest increase in government debt in US history. The only two previous times in which the debt increased more than the 2016 fiscal year were during the financial crisis.
The British Pound in Free-fall:
Traders and strategists cited several reasons for what they believed caused the 6 percent crash of the GBP on Friday morning in Asia.
- The comments by French President François Hollande in Paris, calling for tough exit negotiations. These remarks, though, were several hours before the crash.
- Comments from senior European lawmakers that suggested EU leaders would make it hard for the U.K. to continue having access to the internal free market.
- As the pound’s descent worsened, it broke technical levels that probably triggered automatic sell orders or selling from trading strategies based on algorithms.
The wave of selling Friday follows a rough patch for the currency, which has now slumped more than 16% since the U.K. voted to leave the European Union on June 23 as be seen from below chart.
USA September Jobs Report:
The U.S. employment growth eased for the third straight month in September and the jobless rate rose ticked up a tenth of a percentage point to 5.0 percent as more Americans rejoined the labor force.
Below point shows that America’s job engine might be running out of gas:
- The U.S. economy created only 156,000 jobs in September, which missed forecasts for 172,000.
- It was also down from 167,000 in August and 252,000 in July.
- Continued job losses in manufacturing and a decline in government jobs hurt the numbers, as did a slowdown in growth in the leisure and hospitality sector.
- The average hourly earnings growth came in at 0.2%, which was less than the 0.3% gain economists were expecting.
- The unemployment rose to 5%, rather than held steady at 4.9% as expected. One reason is that more Americans re-joined the labor force, however they would only do so if they thought looking for a job would actually result in finding one.
Below chart shows a breakdown of jobs added in September in comparison with August.
Above chart shows that the slowdown in the labor market in the USA of last month was spread widely, manufacturing jobs declined by 13 K, transportation and warehousing shedding 9,000 jobs and the healthcare and social assistance sector adding only 21,800 jobs, down from 45,300 a month earlier.
U.S. stocks fell, while prices for U.S. government debt were largely unchanged. The dollar weakened against a basket of currencies, suggesting traders had scaled back bets on a rate increase next month.
This employment report will be the last before the Fed’s next policy meeting on November 1-2, based on this investors see almost no chance of a rate increase at that meeting given how close it is to the election.
Until next week.
Yours sincerely,
Eric Panneflek