All eyes on JOLTs labour market data

In focus today

In the US, markets will pay close attention to the JOLTs labour market data for July. The Fed has highlighted the number of job vacancies as a key measure of labour market tightness, with the latest data signalling cooling labour demand but still low levels of actual layoffs.

In Sweden, the Prospera inflation survey will be published at 8:00 CET followed by the services PMI at 8:30. We expect the survey result will show expectations roughly in line with the 2% target for the CPIF index, with risk skewed to the downside, increasing the pressure on Riksbank to cut more aggressively. For the PMI, we project an almost unchanged level compared to 53.8 in July.

The Polish central bank will kick off the slew of September central bank meetings. We and markets project an unchanged rate decision at 5.75%.

Overseas, Bank of Canada will also announce their key policy rate, where we expect a rate cut of 25bp, bringing its policy rate to 4.25% - in line with markets.

Overnight, we get Japanese July wage data, which will reflect the strength of the spring pay increases. The details in the wage data will be key for the inflation outlook and important for the Bank of Japan's decision making in H2.

Economic and market news

What happened yesterday

In the US, the ISM manufacturing PMI for August printed slightly weaker than expected at 47.2 (cons: 47.5). The details were even less optimistic, with the order-inventory balance plunging into contraction (in line with PMIs released earlier) which tends to be a negative leading signal for manufacturing production. Price and employment indices climbed higher, but it should be noted that the realized employment growth in the manufacturing sector has remained weak, and goods prices have continued to record deflation over the past few months.

In Switzerland, a batch of data was released. Headline inflation for August was lower than expected at 1.1% (cons: 1.2%) while core remained steady at 1.1% (cons: 1.1%), implying that Q3 inflation is set to print markedly lower than the SNB's latest forecast at 1.5%. Additionally, monthly momentum crept lower in both headline and core. GDP for Q2 came in at 0.5% q/q (adjusted for sporting events), aligning with expectations.

On the commodities front, oil prices tumbled some 4%, nearing their lowest level since early 2024. Several factors contributed to the downtick, including souring global risk sentiment, a stronger USD and concerns regarding the planned OPEC+ output raises next month. Additionally, Bloomberg reported that a deal is close to resolving the dispute halting Libyan oil activities, with exports and production being curtailed early this week amid an ongoing rift between rival political factions over control of the central bank and oil revenue.

Equities: Global equities declined by 1.5% yesterday in a full-blown, classic risk-off session, marked by significant cyclical underperformance driven by sectors such as tech, growth, and momentum. In contrast, minimum volatility stocks experienced one of their best days this year in relative terms, with true defensive industries ending higher in the US. Yields were lower across the curve, predominantly driven by the long end. The VIX saw a 5-point jump as equities consistently drifted lower throughout the session, closing near day lows. We term this classic risk-off due to the correlations observed across various asset classes, including the negative bond/equity correlation, driven by concerns over growth and demand rather than inflation. Yesterday market action revealed more about investors' positioning and sentiment than the impact of a soft ISM number. In the US yesterday, Dow -1.5%, S&P 500 -2.1%, Nasdaq -3.3%, Russell 2000 -3.1%. Asian markets were sharply lower this morning, with cyclical leaders Japan, Taiwan, and South Korea all down more than 3%.

FI: Declining oil prices, affecting both the linkers and the nominal bonds, sent yields markedly lower from the early afternoon, with 10y German bunds ending 7bp lower at 2.27%. Markets added 5bp to ECB pricing by end 2025. Yesterday, ECB's Simkus said that an October rate cut was quite unlikely. Markets are pricing 8bp for that meeting. The 2086 Austrian bond auction resulted in an outperformance relative to European peers in the long end. Today focus turns to the US JOLTS report as well as Villeroy is set to be on the wires (13:00 CET).

FX: Risk-off sentiment pushed the USD, JPY and CHF higher during yesterday's session with a lower-than-expected Swiss CPI failing to prove a substantial headwind for the CHF. NOK and SEK were among the worst performers with EUR/NOK breaching the 11.80 mark. Oil prices plunged yesterday with risk sentiment, a stronger dollar and concerns over whether OPEC+ will proceed with planned output hike next month caused headwinds.