US jobs report the focus today
Sterling extended its slide against the euro and the dollar over the first half of yesterday’s session, falling to lows of around £0.8435 and $1.3090 respectively, but it subsequently managed to recover some ground and trades at £0.8390 and $1.3150 this morning. The euro was also under pressure against the dollar, falling to an intra-day low of just under $1.1010, but it is a touch firmer today trading at around $1.1030. The US jobs report for September, due later today, could have an important bearing on whether the dollar builds on its recent gains or retreats from current levels.
In government bond markets, US and German yields rose further with stronger than expected US services sector data contributing to the move higher, but UK bonds outperformed with yields ending a little lower. Equity markets, meanwhile, lost more ground amid concerns about the escalating situation in the Middle East, although US indices finished off their worst levels of the day.
Concerns about potential Israeli attacks on oil production facilities in Iran, alluded to by US President Joe Biden in remarks yesterday, have led to a further increase in oil prices, which is also contributing to the rise in bond yields. Brent crude has risen by around $4 to $77.5 per barrel, which is up about $8 p/b from its 2024 to date low of just under $70 p/b in early September. Higher oil prices will put some upward pressure on headline inflation rates in the near-term (albeit now from much lower levels).
Fed member Goolsbee says interest rates in the US have to come down by ‘a lot’ over the next twelve months, noting the recent increase in the unemployment rate and downside risks to the employment outlook. The market expects a substantial reduction in rates by the end of 2025, though it has pared this back a bit lately to around 175bps.
Today’s employment report in the US is expected to show jobs growth of 150k in September according to the consensus forecast, much the same as in August (142k), while the unemployment rate and y-o-y hourly earnings growth are both seen holding steady at 4.2% and 3.8% respectively. Other economic data scheduled includes the construction PMI in the UK.