See the ‘Market Data’ post.
This week’s soft employment data from Jolts, ADP, and initial jobless claims was confirmed by today’s disappointing non-farm payrolls report, sending bond yields sharply lower, stocks slightly down, the dollar weaker, gold higher, and raising expectations for more aggressive Fed rate cuts than previously anticipated. Equities experienced a volatile session, opening higher on expectations that lower rates would support corporate profits, but reversing by midmorning amid doubts that rate cuts will spur economic growth.
Crude oil accelerated its recent weakness with a third negative day, driven by an unexpected 2.4mn barrel rise in U.S. crude inventories, contrary to market expectations of a drawdown, while OPEC+ meets on Sunday and is expected to announce further production increases.
Data: The U.S. economy added only 22k jobs in August (non-farm payrolls), well below forecasts of 75k, and revisions to June and July show a net loss of 36k jobs compared with initial reports, meaning the summer labour market was weaker than initially thought, reinforcing the cooling narrative. Following the revisions, June marked the first month of job losses since late 2020. (chart on Market Data).
The U.S. has added just 598k jobs so far this year, an average of 75k per month, highlighting a clear slowdown in hiring. The unemployment rate rose to 4.3%, the highest since 2021. The implied probability of a quarter-point Fed rate cut in two weeks has risen to 90% while a half-point cut is at 10%, up from 0% yesterday.
UK retail sales rose by 1.1% YoY in July, below estimates but up from 0.9% in June, still below the long-term average of 2.17%.
Canada's unemployment rate rose to 7.1%, the highest level since May 2016, excluding the pandemic years, as the economy lost 65k jobs, mainly in part-time positions.
Trade war: On Thursday, Trump signed an executive order reducing tariffs on Japanese car imports from 27.5% to 15%, easing uncertainty for automakers such as Toyota, Honda, and Nissan.
Deals: In the Spanish banking sector, BBVA (mcap €90bn) has officially launched its all-share €15bn hostile takeover bid for Banco Sabadell (mcap €16bn), following approval from Spain's stock market regulator and despite government opposition. BBVA aims to acquire at least 49.3% during the next month. Sabadell shares rallied 72% and BBVA’s 66% this year.
In business news, the European Union hit Google with a €3bn antitrust fine for abusing dominance in the ad-tech market, its second-largest-ever penalty. Tesla gained 3% today (-8% YTD) after the company proposed a performance-based compensation package for CEO Elon Musk potentially worth up to $1tn, contingent on achieving ambitious targets over the next decade.
Week ahead:
Mon: China trade; Tue: China inflation, US PPI, Inditex earnings; Thu: ECB policy meeting (no change exp), US CPI inflation, Abobe earnings; Fri: UK GDP.
That’s all for this week.
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