September 05, 2024

“The data is skewing to the soft side in the US this week, and expectations are growing that the Federal Reserve will deliver a 50bps rate cut at its next meeting in two weeks. There is a lot more to come this week, with jobless claims, the ISM services PMI, and non-farm payrolls the highlights.”

Sam Cornford – Head of Trading

USD

Some soft JOLTS job openings data yesterday buttressed an anxiousness amongst traders that has emerged since the Labour Day holiday, and the dollar cooled as bets were upped on a super-sized 50bps rate cut this month. The report showed US labour demand continue to weaken, with vacancies falling from a downwardly revised 7.91M to 7.67M – well below the 8.09M expected by the consensus, and the lowest level in three and a half years. Those betting on a 50bps cut in two weeks’ time took some validation from this, and at one point this morning this outcome was priced at a coin flip. For only the second time since mid-2022, this has squeezed the 2-year US Treasury yield down to a touch below the 10-year yield. JPY and CHF seized the opportunity to rally further amid some continued fragility in sentiment, with the yen surging by 1.2% through the session. The US economy is set for some more scrutiny today, with ADP non-farms, jobless claims, and ISM services ahead this afternoon. ADP is a terrible predictor of tomorrow’s headline payrolls report, but it is typically a traded event anyway. More insight is likely to come from the ISM report, where the consensus is for a steady 51.3.

GBP

There is little coming out of the UK right now. It gained against a softening dollar after the JOLTS report, but it’s ticking modestly lower against the euro. We get a construction PMI and a BoE Decision Maker Panel CFO survey today, where we should get some insight into the likely evolution of wage growth and services inflation – the two pieces of data driving the BoE’s decisions.

EUR

A weaker dollar has pushed EUR/USD back towards the 1.11 mark. Upbeat German factory orders data this morning is some welcome positive news for euro bulls waiting on a growth pickup to unlock some further euro upside, with both an upward revision of last month’s numbers to 4.6% and a surprise 2.9% expansion in this month’s data, versus expectations for a 1.6% decline. With strong wage growth in the euro area still failing to translate into a material boost to consumer spending, retail sales are expected at a modest 0.1% this morning.

Markets

The stock selloff took a pause yesterday but only tentatively, with the likes of the S&P 500 trading in choppy conditions and ending modestly lower. There has been a lot of talk about September’s seasonality curse – it has typically been the worst month for stocks – and that appears to be getting into people’s heads to some extent. Sentiment remains fragile, and this week’s performance largely depends on tomorrow’s payrolls report.

Main Economic Events (All Times CET)

4:00am: RBA Governor Bullock speaks
10:30am: UK Construction PMI
2:15pm: ADP Non-Farm Employment Change
2:30pm: US Unemployment Claims
4:00pm: US ISM Services PMI

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