Previous Day's Market Highlights
The pound extended its gains into a 3rd straight day on Thursday, with markets continuing to price out the risk of a no-deal Brexit on 31st October, with BoJo's Brexit plan seeming like a no-go for now. The pound added more than 0.6% against both the dollar and euro over the course of the day, rallying to 6 week highs against both. However, despite the pound's recent gains, there is a real risk that the rally is built on sand. With the UK almost certainly heading for a general election, a campaign full of spending pledges, along with the ambiguity of opinion polling, results in plenty of uncertainties to unnerve investors. Furthermore, the result of the likely upcoming election may give little reason for sterling upside. A Conservative majority, or Tory-led coalition, would continue their push towards leaving the EU, deal or no-deal, on 31st October, piling pressure on the pound once again. The alternative, a Labour-led government, would likely strike a softer tone on Brexit, however a further extension and ensuing uncertainties could result in business delaying investment and potentially tip the UK into a technical recession; bringing the prospect of policy easing from the BoE to the fore. Either way, one thing is for sure, the pound is not yet out of the woods.
Elsewhere on Thursday, markets continued to strike a risk-on tone, with risk appetite boosted by reports that the US and China would be meeting for a further round of trade talks in October. While a date for the talks has yet to be fixed, it is a promising sign that the two superpowers are talking, rather than continuing to engage in tit-for-tat tariff impositions. The improving risk mood lifted both the Aussie and Kiwi dollars by more than 0.3%, while the safe-haven Japanese yen and Swiss franc lost more than 0.5%. Treasury yields also rose across the curve, a sign of lower demand for bonds, while the dollar also declined, losing 0.1% against a basket of peers. The dollar's decline came despite a couple of better than expected economic releases. ISM non-manufacturing PMI showed a solid rate of expansion in the sector in August, with the index reading 56.4 in August, helping to allay some recession concerns after disappointing manufacturing data earlier in the week. ADP employment change figures also beat expectations, showing 195,000 jobs added to the economy in August, though the correlation with Friday's official labour market report is doubtful at best. Meanwhile, the euro closed flat, with market participants perhaps a little apprehensive ahead of next week's key ECB policy decision.
Away from FX, European equity markets rose, with the pan-continental Stoxx 600 adding 0.6%, having earlier risen to a one-month high. US markets also benefitted from the risk-on tone, resulting in the benchmark S&P 500 closing 1.3% higher. Finally, oil prices rose, with global benchmark Brent rising above $62bbl, on hopes that US-China trade talks would reach a breakthrough.
|Currency Pairing||08:00 Today||Vs 08:00 Yesterday||Four-Week High||Four-Week Low||% Change|
Today's Market Highlights
As always, the first Friday of the month means only one thing for financial markets - jobs day. The monthly US labour market report will be released this afternoon, recording the employment situation in August. Headline nonfarm payrolls are expected to continue to moderate after a mediocre July, with a consensus estimate for the US economy to have added 158,000 jobs last month, modestly above the 3-month average of 140,000. Indicators leading up to the payrolls report have been mixed; the ADP employment change report points to 195,000 jobs being created, while the employment component of the ISM index points to softer than expected jobs growth. Nonetheless, the likely continued moderation in payrolls is due to ongoing supply constraints in the US labour market, rather than a decrease in labour demand, with a shrinking pool of available labour to fill open positions, which remain close to a record high. As always, in addition to August's jobs number, revisions to the previous two months' data will be closely watched.
Meanwhile, in addition to the headline payrolls figure, market participants will look for continued signs of labour market tightness in the unemployment rate and earnings data. Unemployment is set to remain unchanged at 3.7%, while average hourly earnings are expected to increase at 3.1% YoY, a slight moderation from July. Despite the ongoing imbalance between labour supply and demand, wages have failed to break above the 3.2% mark since March. One would expect earnings to be increasing at a faster rate, with a shortage of labour supply resulting in increased competition to retain staff, likely leading to increased compensation. While continued signs of a tight labour market would be positive for the US economy, the impact on the Fed's monetary policy outlook is likely to be limited, with policymakers instead focusing on developing global risks. Speaking of the Fed, Chair Jay Powell is scheduled to speak this evening, the final remarks before the FOMC enter their pre-meeting blackout period. Therefore, this evening's speech will be Powell's last chance to re-set market expectations, which currently fully price in a 25bps rate cut. Expect Powell to repeat that the Fed will 'act as appropriate' to sustain the economic expansion, a nod towards further policy loosening this month.
Elsewhere, labour market data will also be in focus from Canada, where the jobs market is also expected to remain tight. Unemployment is expected to remain at 5.7%, while the economy is set to have added a net 15,000 jobs last month. Wages are also likely to have increased at a healthy pace, with a strong labour market likely to give the BoC little reason to alter their present neutral stance. Meanwhile, the final release of second quarter GDP from the eurozone will likely give few surprises, with growth set to be confirmed at a lacklustre pace of 0.2% QoQ, and 1.1% YoY. No data is on the slate for sterling, with focus set to remain on political developments.
Looking ahead to next week, the data calendar remains busy, with the highlight undoubtedly being the ECB's latest policy decision, due on Thursday. Markets have priced in the announcement of a significant stimulus package, with Draghi & Co. set to take the 'kitchen sink' approach, unveiling a sweeping set of measures to try and reverse the fortunes of the eurozone economy. The package will likely contain a minimum of a deposit rate cut, interest rate tiering and a change to forward guidance, with the possibility that the ECB will also restart their quantitative easing programme. Meanwhile, the US data calendar is also busy, with markets set to pay close attention to CPI, retail sales and preliminary consumer sentiment figures. Elsewhere, GDP releases from Japan and the UK will be eyed, along with labour market figures for the latter.
Today's Economic Calendar
|10:00am||EUR||Final GDP (QoQ - Q2)||0.2%||0.2%|
|10:00am||EUR||Final GDP (YoY - Q2)||1.1%||1.1%|
|1:30pm||USD||Nonfarm Payrolls (Aug)||158k||164k|
|1:30pm||USD||Unemployment Rate (Aug)||3.7%||3.7%|
|1:30pm||USD||Average Hourly Earnings (YoY - Aug)||3.1%||3.2%|
|1:30pm||CAD||Net Change in Employment (Aug)||15.0k||-24.2k|
|1:30pm||CAD||Unemployment Rate (Aug)||5.7%||5.7%|
|5:30pm||USD||Fed Chair Powell Speech|