US jobs report weaker than expected
Friday’s much weaker than expected jobs report in the US – the economy added just 22k jobs in August – would seem to have sealed a cut in interest rates at next week’s Fed meeting (17th), although there’s still inflation data for August to come this Thursday (they would probably need to show inflation a good bit higher than forecast, however, to cast serious doubt on a rate cut). US bond yields fell and the dollar lost ground following the jobs data, albeit both finished off their lows of the day, while US stocks closed in the red. The euro and sterling are trading at around $1.1725 and $1.3515 against the dollar respectively this morning, off Friday’s best levels of about $1.1760 and $1.3555, while EURGBP remains very tightly range-bound trading at £0.8675. The focus for markets today will be on France. The government there looks likely to lose a confidence vote in parliament – leaving the country facing a further period of political uncertainty – which could weigh on the euro somewhat near-term. The ECB holds its September monetary policy meeting later in the week (Thursday), but it should be a drama-free affair, with the deposit rate almost certain to be left unchanged at 2%.
US government 2- and 10-year yields both closed around 10bps lower on Friday, the former setting a new 2025 low of around 3.50% and the latter not far above their year-to-date low (4%) in early April at 4.08%. The market is now almost fully priced for a 25bps cut in interest rates at next week’s Fed meeting and expects a further 75bps reduction by the middle of next year. German and UK yields followed US yields some of the way lower on Friday, closing down 4-8bps. In equity markets, the S&P 500 was off around 0.3% at the New York close, having been down almost 1% at one stage, while European stocks were about 0.5% lower on the day.
The US economy added 22k jobs in August according to Friday’s data, a good bit less than the 75k increase expected. This left the average monthly increase over the June-August period at just 29k, a notable slowdown from almost 100k a month in March-May and 179k a month over the three months to February. The unemployment rate nudged up to 4.3% last month, breaking out of its recent range of 4% to 4.2%, while wage growth (measured by the year-on-year increase in average hourly earnings) eased to 3.7% from 3.9% in July.
Looking to the day ahead, as mentioned, the focus will be on the government confidence vote in France, while economic data is thin on the ground with the Sentix Investor Confidence index in the Euro area and consumer credit in the US the only releases of note. Later on in the week, there’s PPI inflation (Wednesday), CPI inflation (Thursday) and consumer confidence (Friday) in the US and the RICS housing survey (Thursday) and GDP for July (Friday) in the UK.