Further signs of cooling in US labour market
Weak US data including poor job openings in July saw US treasuries make further gains as the market turns its attention towards Friday’s payrolls release. Equities also sold off further on concerns about the US economic outlook. The dollar lost a little ground against the euro, moving to $1.1080 this morning, and also against sterling, down a touch to $1.3140 while EURGBP is little changed at around £0.8430.
US job openings in July fell to 7.67m, the lowest since the start of 2021. Labour market data in the US is being closely watched amid signs of a slowdown and this data confirmed rather than allayed fears. Available positions (job openings) have been on a downward trend and are down over a million positions since the same month in 2023. Layoffs are rising, up to 1.76m in July, the highest since March of 2023. All of this adds to evidence that jobs growth is slowing as the unemployment rate ticks up. The Fed don’t want to see any further cooling and so should start to lower rates at their next meeting in a few weeks.
The Fed’s latest beige book added to the weak data for the US. The Central Bank’s survey showed that economic activity was flat or falling across most regions. Prices and wages increased modestly according to the report but, for the labour market, while reports of jobs cuts were few, it was noted that employers were cutting hours and were becoming more selective with hiring and ‘less likely to expand their workforce, citing concerns about demand and an uncertain economic outlook’. Job seekers said finding employment was getting harder and taking longer.
US Government bond yields fell again on the back of that weak economic data, as markets lock in Fed rate cut expectations, with 10-year yields declining by around 8bps yesterday and down 15bps from the start of the week. Bond yields across the Atlantic are also falling as the BoE and ECB consider their next steps in easing monetary policy with 10-year UK yields down 5bps to close to 3.9% and German 10-year yields down 5bps as well, to around 2.2%. Equities also sold off for the most part with the S&P 500 down 0.2% for the day, and down 2.3% since Friday’s close. The FTSE lost 0.4% yesterday while the Eurostoxx was down 1.3%.
ECB executive board member Cipollone says ‘there is real risk that our stance could become too restrictive’, he added that he hoped that data would allow the ECB to continue to be less restrictive as the Euro area economy ‘desperately needs investment and growth’. While Cipollone is seen as a dove, Kazaks from the Latvia central bank is seen as a hawk but he was out yesterday to say that given the data the ECB have at the moment, the picture is pretty clear that the Council ‘can take the next step in the direction of lowering rates’.
On the agenda today, Euro area retail sales, Irish Q2 GDP, ADP employment and jobless claims in the US and final August US services PMI as well as ISM services.