September 09, 2024

“Last week’s US labour market data was mixed, with payrolls missing forecasts but unemployment falling and earnings rising. This kept September rate cut expectations unchanged. The dollar’s reaction was subdued. Key focus this week will be August CPI inflation, which could impact the Fed’s rate decisions.”

Tim Hallinan – Trading Director

USD

Non-farm Payrolls (NFP) in the US rose by 142,000 in August, the US Bureau of Labor Statistics (BLS) reported on Friday. This figure followed the 89,000 increase (revised from 114,000) recorded in July and fell short of the market expectation of 160,000. Other details in the report showed that the unemployment rate edged lower to 4.2%, with the labour force participation rate remaining unchanged at 62.7%. Finally, wage inflation, as measured by the change in average hourly earnings, rose to 3.8% from 3.6% in July. Economists suggest that this modest growth may lead the Federal Reserve to implement a 25-basis-point rate cut, rather than a larger reduction, at its next meeting.

GBP

The UK experienced a sharp decline in job placements and a slowdown in pay growth last month, according to the Report on Jobs by the Recruitment and Employment Confederation (REC) and KPMG. Permanent job placements fell at their fastest pace in five months, and starting pay growth for permanent roles reached a five-month low, one of the weakest levels since early 2021. KPMG’s UK chief executive noted that business confidence remains uncertain, reflecting the market’s cautious sentiment. These trends may strengthen the argument for the BoE to consider cutting interest rates sooner than expected. While a Reuters survey indicates most economists believe the BoE will wait until November, financial markets suggest a 25% chance of a rate cut on 19 September.

EUR

Investor morale in the euro zone rose unexpectedly in August, ending a three-month decline as inflation pressures eased, according to a Sentix survey. The index improved to -18.9 from -22.5 in July, but Germany’s economy continues to weigh on the region. Sentix’s managing director, Patrick Hussy, warned that the euro zone remains in a recession, and the recent improvement is not a sign of a lasting recovery. The ECB is expected to cut the deposit rate by 25 basis points to 3.50% on 12 September, following a similar cut in June, with markets anticipating another cut in December, and possibly three total cuts in 2024.

Markets

Bond traders are divided on the Federal Reserve’s rate cuts. Jamie Patton from TCW Group expects more aggressive cuts, boosting Treasuries, while Bob Michele from JPMorgan favours corporate bonds, believing the market has overreacted. The Fed is expected to start cutting rates on 18 September, with most traders anticipating a quarter-point reduction, though some predict a half-point cut. Recent employment data showed slower job growth but did not significantly alter the outlook.

Main Economic Events (All Times CET)

3:30am: China CPI Inflation
10:30am: Eurozone Sentix Investor Confidence

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