Markets
Markets were mainly playing the waiting game in the run-up to the US August payrolls only to find out they came in pretty close to expectations. Job creation decelerated to a still strong 1371k in August (vs. 1350k expected) from a slightly downwardly revised 1734k in July. Net job growth was again the largest in the retail sector (249k). Leisure & hospitality added 174k jobs. That’s again significantly less compared to the previous month but the deceleration comes after a few stellar months. The US government also beefed up the headline figure, hiring about 240k temporary census workers. Unemployment surprised well on the upside, falling from 10.2% to 8.4% whereas markets anticipated a drop to 9.8%. Though still high from a historical perspective, that’s good news for the Fed who recently put more emphasis on maximum employment when setting monetary policy. The Fed will publish new forecasts when it reconvenes mid-September. On the downside however, permanent unemployment rose with more than half a million after a stable July. The number of permanently unemployed now totals to 3.41 million, the highest since 2013. The participation rate further recovered to 61.7% vs. 61.8% consensus. Markets reacted mainly to the positive evolution in the unemployment rate which now faces higher scrutiny since the Fed’s regime shift. Core bond yield curves bear steepen in a classic risk-on manner. USTs underperform with yields inching 4.5 bps (10-yr) to 5.5 bps (30-yr) higher. German yields rise in lockstep but gains are limited to 1.8 bps (10-yr) to 2.5 bps (30-yr). Peripheral spreads changes are negligible. Greece (+2 bps) underperforms peers.
The dollar wasn’t really going anywhere for most of the European trading day until the payrolls were released. The USD strengthened in a knee-jerk reaction to the stronger-than-expected decline in the unemployment rate. Gains are capped near the EUR/USD 1.18 area however (down from 1.185). That’s today’s corresponding level of the lower bound of the upward trend channel and thus counts as an important support zone. The trade-weighted dollar currently manages to take out 93 again but convincing (technical) follow-through gains are absent. USD/JPY is headed north to the 106.5 area. A shy attempt by sterling to recoup some of yesterday’s steep losses failed as soon as EUR/GBP touched the 0.89 support zone. That intraday trend reversal was further reinforced by comments from Bank of England member Michael Saunders. He sounded very dovish, saying additional easing will likely be appropriate as risks to the growth forecasts are tilted to the downside and the BoE should lean strongly against them. There’s room to expand QE and the review on negative rates hasn’t yet finished either, he added. EUR/GBP is moving further north in the 0.893 area at the time of writing, slightly up from 0.892 yesterday.
News Headlines
Canadian payrolls increased by 245.8k in August, matching consensus. Details were strong with full time employment rising by 205.8k and part-time jobs by 40k. The unemployment rate declined as expected from 10.9% to 10.2% with the participation rate at 64.6%, coming from 64.3%. Hourly wages rose by 6% y/y. The Canadian loonie couldn’t profit from the labour market data, hanging in limbo with a strong dollar after US payrolls.
The Czech koruna faces some more selling pressure today with EUR/CZK ticking 26.50 for the first time since July. The number of local coronacases reaches highs on a daily basis. In a response, Prague today tightened social distancing rules. Face masks will become mandatory in several places and restaurants will close at midnight.
