Key US jobs report today
The dollar remains close to its highs of the week – largely unaffected by Donald Trump’s rollout of his ‘reciprocal’ tariffs 2.0 overnight – ahead of the release of the key jobs report in the US later today. The latter may well determine whether the US currency can continue its advance, which has gathered steam over the course of the week, or whether instead it starts to give back some of its recent gains. The euro and sterling are trading at around $1.1430 and $1.32 respectively this morning, down about three cents and two cents respectively from last Friday’s closing levels, while EURGBP is hovering just above the £0.8650 level.
In government bond markets, US 2-year yields nudged down a little yesterday, partially reversing their post-Fed meeting increase on Wednesday, while 10-year yields were unchanged. German and UK bonds had a similarly uneventful session with yields largely flat on the day. Yields generally are a touch higher this morning. In equity markets, European stocks shed almost 1.5%, more than giving up the gains they made over the previous few days, while US indices reversed course quite sharply with the S&P 500 ending almost 0.5% lower having been ahead by around 1% at one stage. A combination of mixed earnings results overnight, Trump’s ‘reciprocal’ tariffs, as well as his letter to leading US drug companies ordering them to reduce prices, is weighing on equities at the start of play today.
Yesterday’s PCE inflation data in the US were broadly in line with expectations. The headline rate of inflation rose for a second month in a row, coming in at 2.6% from 2.4% in May and 2.2% in April, while the core rate was unchanged from May at 2.8% but still slightly higher than earlier in the year. The impact of higher tariffs is becoming evident in the data, with durable goods inflation accelerating to around 1% in June, up from -1% as recently as March. The Fed expects inflation to rise further over the coming months, hence its ongoing caution about lowering interest rates.
In contrast to the US, inflation in Germany fell for a sixth month running in July, though of course the German economy has been generally weaker than its US counterpart (and its government hasn’t been imposing tariffs!), with the headline rate of EU-harmonised inflation falling to 1.8% from 2% in June (and 2.8% at the end of last year).
Today’s economic data include a flash reading for Euro area inflation for July. The consensus expects the headline rate to dip to 1.9% (from 2% in June) and the core rate to remain unchanged at 2.3%, which will again leave the ECB (as it has said) in a “comfortable place”. The key release though is the US jobs report for July – the consensus expects payrolls to have increased by just over 100k last month and the unemployment rate to have ticked up to 4.2%. Other US data due include the ISM manufacturing index and the University of Michigan consumer confidence index (both for July).