Markets

•          Today’s long-drawn countdown to the publication of the key US payrolls report was briefly interrupted by the BLS announcing it had difficulties affecting its data retrieving tools. The announcement already triggered some additional volatility ahead of the release. The reaction was indicative for the market bias. US yields and the dollar tentatively erred south. Data mostly appeared on the screens on time and rubberstamped this week’s other evidence (ISM’s, JOTLS, ADP) on a softening in US labour market conditions. The US economy in August only added 22k additional jobs. The previous two months were also (slightly) downwardly revised (-21k). Symbolically important, revisions showed that employment de facto declined in June (-13k). For August, there were actual job declines in manufacturing (-12k), but also government (-16 k) and several services related sectors (information, financial, professional business services). Positive growth was mainly concentrated in health care and leisure & hospitality. The picture from the households survey was a bit more balanced. Still the jobless rate rose from 4.2% to 4.3% even as the participation rate rose from 62.2 to 62.3%. Average hourly earnings at 0.3% m/m and 3.7% (from 3.9%) were close to expectations. Whatever the ‘nuances’, the message for markets was straightforward. Remembering Fed Chair Powell’s guidance at Jackson Hole on a fragile labour market (low demand and at the same time low supply of labour) potentially tilting the Fed’s assessment, markets moved further from scenario from a cumulative 50 bps of easing this year toward currently subsequent 25 bps steps at each of the remaining Fed meetings this year (Sep, Oct Dec, +/- 70 bps EoY discounted). Markets also see the Fed returning to the 3% ‘neutral policy rate area’ by mid next year. US bond yields are declining between 12 bps (2-y) and 7 bps (30-y). The 2-y yield is closing in on the post-Liberation Day low (3.50%/3.43% area). On FX markets, the dollar declines materially, but technical confirmation is still needed to conclude an a genuine new downleg. DXY eases from 98.25 to 98.65, but short-term support at 98.55 still survives. EUR/USD jumped to currently 1.1725, but the 1.1829 YTD top still is some distance away. Idem for the USD/JPY cross rate at 147.25, with first support at 145.86 (end July correction low). US equities show modest gains of up to 0.5%, but it suffices for the major indices to touch all-time record levels. European equities underperform (EuroStoxx 50 +0.1%). Oil declines further (Brent 65.75 $ pb) on headlines that Saudi Arabia speed up reversing production cuts. 

•          The FAO’s world food commodity prices index remained largely unchanged in August, leaving the index 6.9% higher year on year. Increases in meat, sugar and vegetable oil prices offset declines in cereal and dairy quotations. The Meats increased by 0.6% in August, reaching a new all-time high, underpinned by strong demand in the US and China. The sugar index rose slightly, by 0.2%, after five consecutive declines. Concerns over Brazilian sugarcane production an stronger global import demand were partially countered by prospects for larger crops in India and Thailand. Vegetable oils (+1.4%) reached the highest price level in over three years, led by palm, sunflower and rapeseed oil quotations. Decliners in August included cereal prices (-0.8%) amid dropping wheat prices and fierce competition pushed down Indica rice prices. Dairy prices declined by 1.3%, with butter, cheese and whole milk powder quotations down amid subdued import demand from key Asian markets.

•          Canadian employment fell in August and missed expectations in doing so. Around 65.5k jobs were lost, marking the first back-to-back decline (-41k in July) since 2020. Part-time jobs bore the brunt (-59.7k). The unemployment rate rose 0.2 ppts to 7.1% – the highest since in four years – and the participation rate eased slightly to a 3.5 year low at 65.1%. Employment decreased across several industries, led by professional, scientific and technical services (-26k), transportation and warehousing (-23k), and manufacturing (-19k). The report fuels speculation for another rate cut by the Bank of Canada. Market implied odds picked up from 57% yesterday to 79%. The central bank kept rates steady at 2.75% for three consecutive meetings but never shut the door for future downward adjustments. CPI numbers due one day ahead of the BoC meeting (Sep 17) will decide over the matter. USD/CAD whipsawed amid a weak US labour market report but currently trades unchanged around the pre-payrolls 1.38 levels. The Loonie does lose out sharply against all other G10 peers.

Graphs

US 2-y yield: testing key 3.50/45% area as weak payrolls open the way for Fed to reaccelerate  policy normalization.  

EUR/USD: dollar eases on loss of interest rate support, but no technical break(s) yet. 

Brent Oil ($ bp) extends decline as Saudi Arabia wants to speed up reversal of production cuts.  

Nasdaq: US equities touching (minor) all-time record on hope for additional Fed policy support.  

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