US inflation, ECB the focus this week
Friday’s employment report in the US was a good deal stronger than expected – with the economy adding over 160k jobs in August – but had a limited enough impact on markets. In FX, the dollar rallied initially on the back of the data but gave up most of its gains again into the close of business. The euro and sterling are trading at around $1.1615 and $1.3525 against the US currency this morning, little changed from their levels pre the jobs report, leaving EURGBP still hovering just below £0.86. The key economic data release this week is the August CPI in the US on Friday, which will shape market expectations for the Fed’s monetary policy meeting next week. Also this week, the ECB announces its latest interest rate decision on Thursday. It is widely expected to raise the deposit rate for a second time, by 25bps to 2.5%, following its quarter-point hike in June.
A spike in oil prices was the main driver of government bonds last week. Brent crude closed out Friday at around $96 per barrel, up about $7 on the week, and is circa 1% higher this morning on the back of US-Iran tit-for-tat attacks over the weekend. Benchmark US 10-year yields rose by around 6bps on the week with equivalent German and UK yields both posting a similar increase. In equity markets, US stocks chalked up some gains following Friday’s employment report but the S&P 500 ended essentially flat for the week as a whole, while European stocks underperformed on the week, shedding almost 1%.
Employment in the US rose by 162k in August according to Friday’s payrolls report, well ahead of the consensus forecast for a gain of about 55k, while the July outturn was revised up to show an a small increase of just over 20k (previously reported as a decline of circa 25k). The unemployment held steady last month at 4.1%, though the year-on-year increase in average hourly earnings nudged down further to stand at 3.1%.
For the week ahead, as indicated, the main focus for markets will be the ECB meeting on Thursday and the CPI inflation report in the US on Friday. Apart from the latter, other economic data releases due include a third estimate of Euro area Q2 GDP growth this morning; US producer prices for August on Thursday; and UK GDP for July on Friday.