The mixed US labour market report for August was no indicator of anything. Investors are still not convinced how aggressively the Fed will start the easing cycle at its meeting on 18 September. After the readings, the valuation of the probability of a 50 bp cut rose temporarily to almost 50%, but it ended the week at its current ceiling of around 30%. However, market participants' sentiment deteriorated markedly, with stocks plunging sharply on Wall Street. After Friday's 1.7% decline, the S&P 500 is already 4.3% lower than at the end of August. The EUR/USD pair, despite an initial upward reaction to the series of releases, ended the week below 1.11.
The NFP report offers no indication of the USD direction
The labour market report for August turned out to be mixed. The data set certainly did not disappoint down the line as it had the month before. It was mainly the employment change that disappointed. 142,000 new full-time jobs were created. This was 23,000 below estimates, but the effect was further amplified by downward revisions to July and June NFP data by a combined total of almost 90,000. The unemployment rate fell from 4.3 to 4.2%, in line with forecasts. Wages, on the other hand, rose more strongly than forecast. Their annual growth rate jumped from 3.6 to 3.8%. The average number of hours worked per week also rose, which is a secondary but valuable benchmark for weakening labour demand.
Wednesday's inflation reading will provide further insights in the coming days. CPI growth is forecast at 0.2% m/m. The NFIB Small Business Optimism Index (Tuesday), the University of Michigan's consumer confidence index (Friday), and Thursday's dose of statistics on the level of new claims for unemployment benefits will also be followed more closely than usual. The event of the week will be Thursday's decision by the ECB Governing Council. The euro has been rallying in August on the back of USD weakness rather than an improvement in the perception of its fundamentals. The macroeconomic environment of the single currency so far offers no prospect of a marked strengthening against the CHF or GBP.
Inflation in the Eurozone slowed to 2.2% y/y. In August, price growth in the single currency area was the weakest in more than three years. Wage dynamics (including collective bargaining) also declined in the second quarter. The economic situation remains anaemic. Above all, the German industry is in collapse, but overall growth should be assessed as weaker than anticipated by the ECB. The long-awaited economic rebound is not materialising. In such a situation, investors do not have the slightest basis for a favourable revision of the European Central Bank's policy expectations for the euro. Thursday's 25 bp cut, the second in the cycle, is a foregone conclusion, and markets are pricing in a total reduction of almost 1.5 percentage points in the cost of money over the coming year.
This commentary is not a recommendation within the meaning of Regulation of the Minister of Finance of 19 October 2005. It has been prepared for information purposes only and should not serve as a basis for making any investment decisions. Neither the author nor the publisher can be held liable for investment decisions made on the basis of information contained in this commentary. Copying or duplicating this report without acknowledgement of the source is prohibited.
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3 Sept 2024 10:00
Turkish inflation drops by almost 10 percentage points
The mixed US labour market report for August was no indicator of anything. Investors are still not convinced how aggressively the Fed will start the easing cycle at its meeting on 18 September. After the readings, the valuation of the probability of a 50 bp cut rose temporarily to almost 50%, but it ended the week at its current ceiling of around 30%. However, market participants' sentiment deteriorated markedly, with stocks plunging sharply on Wall Street. After Friday's 1.7% decline, the S&P 500 is already 4.3% lower than at the end of August. The EUR/USD pair, despite an initial upward reaction to the series of releases, ended the week below 1.11.
The NFP report offers no indication of the USD direction
The labour market report for August turned out to be mixed. The data set certainly did not disappoint down the line as it had the month before. It was mainly the employment change that disappointed. 142,000 new full-time jobs were created. This was 23,000 below estimates, but the effect was further amplified by downward revisions to July and June NFP data by a combined total of almost 90,000. The unemployment rate fell from 4.3 to 4.2%, in line with forecasts. Wages, on the other hand, rose more strongly than forecast. Their annual growth rate jumped from 3.6 to 3.8%. The average number of hours worked per week also rose, which is a secondary but valuable benchmark for weakening labour demand.
Wednesday's inflation reading will provide further insights in the coming days. CPI growth is forecast at 0.2% m/m. The NFIB Small Business Optimism Index (Tuesday), the University of Michigan's consumer confidence index (Friday), and Thursday's dose of statistics on the level of new claims for unemployment benefits will also be followed more closely than usual. The event of the week will be Thursday's decision by the ECB Governing Council. The euro has been rallying in August on the back of USD weakness rather than an improvement in the perception of its fundamentals. The macroeconomic environment of the single currency so far offers no prospect of a marked strengthening against the CHF or GBP.
Inflation in the Eurozone slowed to 2.2% y/y. In August, price growth in the single currency area was the weakest in more than three years. Wage dynamics (including collective bargaining) also declined in the second quarter. The economic situation remains anaemic. Above all, the German industry is in collapse, but overall growth should be assessed as weaker than anticipated by the ECB. The long-awaited economic rebound is not materialising. In such a situation, investors do not have the slightest basis for a favourable revision of the European Central Bank's policy expectations for the euro. Thursday's 25 bp cut, the second in the cycle, is a foregone conclusion, and markets are pricing in a total reduction of almost 1.5 percentage points in the cost of money over the coming year.
See also:
Turkish inflation drops by almost 10 percentage points
US dollar without support from Jackson Hole, EUR/USD touches 1.12
The Riksbank resumes rate cuts, but refrains from a 50 pb reduction
Inflation in the US will not stand in the way of the Fed's September rate cut. The US dollar is a hair's breadth away from this year's lows
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