Jobs Report in Focus

US Jobs Today

US jobs report later today is the main event and sees a quiet start to the month this morning as traders await the data. The US jobs report is the main focus for today as data this week indicated that there has been a slowing in the labour market and its robustness may be showing signs of cracks. This has helped raise hopes that the Fed might be done with rate hikes, Moreover, the kind of PCE number we had yesterday - +0.2% month-over-month, is the kind of level at which the Fed can probably sit back and wait. Although core PCE ticked up to 4.2% annually, the 3-month annualised rate is coming down fast to 2.9%. Expectations for the nonfarms today are at roughly +170k jobs, average hourly earnings +0.3% and unemployment steady at 3.5%. Remember Powell is focused on the labour market now – if it cracks sooner than expected, or with a deeper decline in hiring, then do we maybe see the Fed consider cuts sooner than they have been telling us? It’s possible.

UK Data Grim

UK House prices falling at fastest pace since 2009 and the manufacturing at a miserly 43.0 – albeit that is not as bad as feared. Signs of a bottom? “Manufacturers are reporting a weakening economic backdrop, as demand is hit by rising interest rates, the cost-of-living crisis, export losses and concerns about the market outlook,” says the S&P and CIPS report.

Mixed Market Movements

European indices nursed modest gains at the open but lacked any real direction. The US dollar retreated a touch following yesterday’s bounce, whilst gold held gains at $1,942 where it faces stern resistance. Oil is up and heading for a strong weekly gain. Treasury yields are holding lower with the 10yr at 4.1%. European equity indices finished the month mixed but were generally down by around 3% for August. US indices also diverged with the Nasdaq eking out a small gain as the S&P 500 lost a bit of ground. Both registered their first monthly declines since February. Although the Nasdaq is on course for best week since July, and SPX best since June, they fell around 2% for August. Banks lost about 8% during August – their worst month since the crisis in March…liquidity trap awaits as the Fed rugs the special measures.

The dollar recovered some ground yesterday as the euro slipped as traders reduced bets on a hike in September by the ECB – still very much up in the air.

Made in China

China is doing more tinkering with stimulus to shore up its property market with measures to cut mortgage and deposit rates, whilst the PBOC also reduce the amount of FX reserves banks must hold. Meanwhile the Caixin private sector survey indicated factory growing in China in August, boosting sentiment overnight even though Taiwan, South Korea and Japan all reported declining factory activity.

Oil Slick

Oil cemented its weekly rally and pushed up to its highest since August 10^th after Russia said OPEC+ had reached a fresh agreement to cut production. This built on a whopper of an inventory draw in the US which indicated robust demand ahead of the Labor Day weekend. Backwardation is steeper with the WTI six-month futures trading almost $4 below the front month, the steepest discount this year.