Enough Labour Already!
And no, I’m not talking about UK politics here. Despite the new UK government attracting significant attention in markets and the press ahead of the awaited/feared Autumn budget, this briefing is about the labour market. This week holds in store a plethora of US labour market data which is likely the biggest piece of the puzzle remaining in unpacking the event that will define Q4 markets: how Fed monetary policy adjustment will shape up. With the next Fed decision now just a little over two weeks away, the data calendar looks as follows. Today sees ISM manufacturing data published at 3pm BST. This will hold the potential to move markets following the Labor Day bank holiday.
The week’s data will culminate in the usual first Friday of the month non-farm payroll event, with markets looking for a figure of 165k. This level should be commensurate with a drop in the unemployment rate to 4.2%. N.B recent upside surprises to the unemployment rate despite headline statistics recording in line with estimates. If you thought it were plain sailing following the ISM data and Friday’s payroll, there are the minor obstacles of JOLTS, ADP, and ISM data also due. Make no mistake then that with the exception inflation data due next week, it is this week’s data that will define the near-term market outlook. Markets will be scrutinising the data for clues on the size of the September 18th rate cut.
If data does confirm a cooling labour market in the US expect EURUSD to claim further ground despite its current strength. It may be that GBPUSD would best express any further USD weakness with fears of a slowdown in the Chinese economy once again weighing on the more heavily exposed European vs. UK economy. The former is more likely exposed to the likelihood of importing disinflationary pressures which could further hamper yields and thus the currency. The data calendar would also support this view with limited high salience statistics due for publication in the UK this week.
Discussion and Analysis by Charles Porter
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