Previous Day's Market Highlights
Markets received the latest update on the US employment situation on Friday, which showed the trend in hiring continuing to slow, but the labour market as a whole remaining tight. The US economy added 130,000 jobs last month, the lowest such number since May, and short of the consensus estimate of 160,000. The continued moderation in payrolls, the 12-month average now being the lowest in over 18 months, is a result of supply constraints in the US economy, with the labour market approaching full employment. This is evidenced by unemployment remaining close to 50-year lows at 3.7%, and the participation rate increasing to 63.2%, the highest since February. A promising sign is that upward pressure on wages is now becoming more evident, with increased competition for labour beginning to result in increased compensation for employees. Average hourly earnings increased by 3.2% YoY in August, and by 0.4% MoM, the latter being the fastest monthly increase since February.
These positives were however largely ignored by markets, which instead focused on the soft headline figure, resulting in the dollar shedding 0.4% against a basket of peers. Despite the market's reaction, the labour market report will likely have little impact on the FOMC, with a 25bps rate reduction in September remaining likely. Fed Chair Powell reaffirmed these expectations in remarks on Friday, stating once again that the FOMC will continue to 'act as appropriate' with significant risks to the economic outlook remaining. As flagged previously, despite the US economy ticking along relatively well, and outperforming global peers, the trajectory of US monetary policy will largely depend on developments in the global risk landscape.
Elsewhere on Friday, the Canadian dollar firmed after a better than expected jobs report. Unemployment remained at 5.7% in August, while the economy added a net 81,800 jobs, well above expectations - though the net employment change is somewhat of a random number generator, being a very volatile data series. Nonetheless, the loonie gained 0.5% over the course of the day, also aided by softer than expected figures from south of the border. The continued tight labour market should see the BoC maintain their relatively neutral tone, however, as with the Fed, policy loosening is largely dependent on developments in the global economy.
Friday's only other notable release was the final reading of second quarter GDP from the eurozone, which produced no real surprises. Q2 growth was confirmed at 0.2% on a QoQ basis, while YoY growth was upwardly revised by 0.1% to 1.2%. However, momentum across remains incredibly weak, with the ECB primed to deliver a significant stimulus package next week. The euro traded unchanged on Friday. Meanwhile, sterling traders received a welcome break from any significant Brexit news as the week drew to a conclusion, despite opposition parties planning to once again vote against holding a general election when the government bring a motion back to the Commons. Sterling shed 0.4% against both the dollar and euro over the course of the day, likely to be down to profit taking after the pound's rally earlier in the week.
Away from FX, equity markets on both sides of the Atlantic ended the week with gains. The pan-European Stoxx 600 closed 0.3% higher, while the US benchmark S&P 500 added 0.1%, chalking up back-to-back weekly gains for the first time since early July. Finally, oil prices also gained ground on Friday, with both Brent and WTI settling more than 0.5% higher.
|Currency Pairing||08:00 Today||Vs 08:00 Yesterday||Four-Week High||Four-Week Low||% Change|
Today's Market Highlights
What's likely to be another busy week for financial markets begins with a relatively quiet calendar, with little in the way of top-tier data releases due. Today's data highlight comes from the UK, in the shape of July's monthly GDP figures, set to show the economy having expanded by 0.1% MoM. While such a release would be more upbeat than the stagnation seen in June, markets will likely ignore the data, with focus instead remaining on ongoing political developments. The government are, this evening, set to bring forward another motion requesting an early general election; however, the motion has little chance of succeeding with opposition parties still planning to vote against the plan. The result of this is that a general election may not be called until after the EU Summit on 17th October, with Parliament set to be prorogued this week until mid-October, making it impossible to pass an early election motion. However, an early plebiscite remains a question of when, rather than if; we may just have to wait until the drama of October's EU Council has played out first.
Looking ahead to the remainder of the week, the main event will undoubtedly be Thursday's European Central Bank (ECB) policy decision. Markets expect Draghi & Co. to deliver a sweeping stimulus package in an attempt to re-anchor eurozone inflation expectations and reverse the present weak economic momentum. Policymakers will likely plump for the 'kitchen sink' approach, using most tools in their policy arsenal in an attempt to kickstart the economy. A deposit rate cut of at least 10bps is a done deal, along with the likely introduction of a tiering system for the deposit rate, aimed at mitigating the impact of such a policy on eurozone banks. Policymakers will also likely strengthen their forward guidance, making future rate increases contingent on certain data milestones rather than a fixed point in time. A restart of the ECB's quantitative easing programme is also on the cards, likely at a pace of between 20bln and 30bln EUR per month. For markets, with such a significant package already largely priced in, the ECB will have to vastly exceed expectations in order to weaken the euro.
Elsewhere, US releases will be eyed, with the consumer in focus. Thursday's CPI inflation release will be in focus, with the pace of price increases set to remain below the Fed's target, with CPI expected at 1.8% YoY. Elsewhere, markets will examine Friday's retail sales and consumer sentiment figures, with consumer spending remaining the growth engine of the US economy. Other major data releases are relatively thin on the ground this week, with only UK labour market data (Tues) of note. Central bank speeches are also lacking, with the FOMC having now entered their pre-meeting blackout period.
Today's Economic Calendar
|9:30am||GBP||GDP (MoM - Jul)||0.1%||0.0%|
|9:30am||EUR||Sentix Investor Confidence (Sep)||-13.5||-13.7|
|Tentative (Evening)||GBP||Parliamentary Vote on Early General Election|