The August jobs report was one of those reports which had something for everyone, which perhaps explains the rather bizarre market reaction to last Friday’s numbers.
Bond yields, as well as the US dollar slid back sharply in the aftermath of the report, however those losses proved to be short-lived, as the US dollar rebounded and yields finished the day higher.
On the headline number the jobs report for August beat expectations, coming in at 187k, however the unemployment rate rose from 3.5% to 3.8%, although part of that can be explained by a rise in the participation rate to 62.8% from 62.6%, putting US worker participation in the workforce at its highest level since the US economy reopened after Covid.
We also saw sharp revisions lower to both the June and July payrolls report, with July revised down to 157k from 187k, while June was revised down from 209k to 105k. Wage growth was also softer at 4.3% pointing to a welcome slowdown as far as the Federal Reserve is concerned when it comes to the narrative surrounding the US economy.
From the Fed’s point of view this is exactly the type of report they would have wanted to see to justify keeping monetary policy unchanged this month. If that trend continues, and there’s no reason to suppose it won’t then it’s quite reasonable to assume that we could well have seen the last of Fed rate hikes for this economic cycle.
This means that the narrative will soon shift to when we can expect the first rate cut, although the late rebound in the US dollar on Friday somewhat runs contrary to that interpretation.
The rebound in yields is probably easier to explain given that they still finished the week quite a bit lower, with the US 2-year yield finishing the day higher, even as it closed below the lows of the last two weeks.
In any case the August jobs report helped round off a fairly positive week for US markets, while European markets also finished higher, despite undergoing a Friday decline.
This divergence appears to suggest that investors have more confidence in the resilience of the US economy in the short term, than in Europe, where the economic data is much less impressive.
With US markets off for the annual Labour Day holiday today is likely to be a relatively quiet day for European markets, even as we get set for a period of important central bank rate meetings starting this week with the RBA tomorrow and the Bank of Canada on Wednesday, although we can look forward to a positive open, after Asia markets rallied on optimism over further measures by China to help its property market.
Both of the central bank meetings this week should set us up for 3 weeks of policy stasis on the central bank front with the ECB next week, and the Federal Reserve, SNB, Bank of England and the Bank of Japan the week after, although in the BOE’s case the decision is slightly tilted towards one more hike.
We also have the August services PMIs tomorrow which are expected to point to a weakening services sector in both Europe and the UK, thus making further rate hikes a risky endeavour on the part of the ECB and BOE.
EUR/USD – slid back to August lows at the 1.0760/70 area, and the trend line from the March lows. A break of the 1.0750 area potentially opens up a move towards the 1.0630 level. Resistance remains back at the highs last week at 1.0945.
GBP/USD – having failed to push above the 1.2750 area last week, the pound has slipped back with the next support at the August lows at 1.2545. We need to push back through the 1.2800 area to diminish downside risk and a move towards 1.2400.
EUR/GBP – having failed at the 0.8620/30 area last week we’ve seen the euro slip below the 0.8570/80 area. While the 50-day SMA caps, the bias is for a retest of the lows at 0.8500.
USD/JPY – slipped back towards the support area at 144.50 before snapping back sharply on Friday. The 147.50 area remains the key barrier for a move towards 150.00. Support comes in at last week’s lows at 144.40/50.
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