Markets
It was a stretched countdown to the US payrolls today. They offered mixed signals for the market. The headline figure missed a 200k estimate by coming in at 187k. The previous two months were also revised downwardly by a combined 49k. Sectors adding the most jobs were private education & health (100k), followed from a distance by trade and transport (18k) and finance (19k). Hours worked went down, to 34.3 hours and matching the lowest level since the spring of 2020. The unemployment rate, however, fell to 3.5% thus remaining close to the 3.4% multidecade low. It suggests tightness on the labour market isn’t going anywhere for the time being. This also lead to wage growth picking up again by 0.4 to 4.4% y/y. Both were the same as in June and defied expectations for an easing to 0.3% and 4.2% respectively. The participation rate stood at 62.6%, unchanged vs. June and in line with expectations. Today’s report is actually solid-to-strong in nature but for markets, who have been dumping US Treasuries as if there was no tomorrow all week, the headline count miss and the decline in hours worked served as an opportunity to pick up some bonds again. The looming weekend as well as important data next week (US CPI) is probably also supporting the move. US yields whipsawed but in the end erased all of their previous gains. Current moves vary between -2 (30-y) to -10 (5-y) bps. Bond yields, in particular for longer tenors, are still well up in a weekly perspective though. German yields today simply followed their US counterparts. They ease 2.3-2.7 bps across the curve.
On currency markets, the dollar’s rally went in reverse. We saw some signs of fatigue already yesterday, with the greenback unable to profit from minor risk off and USTs underperforming. Today’s data was a trigger for a profit-taking move. Risk appetite also improved after the report, offering no help to the US currency either. European stocks leave the red behind to trade 0.3% higher, Wall Street opens more than 1% higher (Nasdaq). DXY nears the 102 handle again. EUR/USD tries to recoup the 1.10 barrier ahead of the weekend. The greenback also loses out against the Japanese yen, even as the latter falls against most other G10 peers. USD/JPY slips back below 142. Sterling is still contemplating yesterday’s BoE decision only to conclude that it doesn’t make anyone much wiser. Data dependency is the name of the game at the BoE too. Chief economist Pill in explaining the decision said the MPC is focused on the “greater risk” of inflation persistence. That said, he does note that higher rates are weighing on activity and prices and warned for not doing too much. EUR/GBP ekes out a gain to trade in the 0.863 area. GBP/USD rallies to 1.277. News & Views
The Canadian labour market report disappointed. The economy shed 6.4k jobs in July, undershooting the consensus view for a 25k creation. Part-time jobs were fully responsible for the decline (-8.1k) whereas full-time jobs grew a marginal 1.7k. The unemployment rate as expected ticked up higher, to 5.5% from 5.4% and came with a slight 0.1 ppt drop in the participation rate to 65.6%. Wages shot up though, from 3.9% to 5%. That was well above the 4.1% analyst view. That’s offering some clues that the labour market, although perhaps easing, is still very tight. It also offers the Bank of Canada conflicting signals. This was the last report before they meet on September 6. The BoC hiked in June and July to 5% after a five-month break, acknowledging that they underestimated the persistence of the economy and inflation. Regarding the latter, the July inflation print (August 15) will provide additional input to the meeting. Canadian money markets currently don’t expect the BoC to hike in September, but is not ruling out a move at later meetings. USD/CAD declined after the data though that’s mostly a US dollar move. The pair is still marginally higher for the day, trading around 1.336.
