Finally, it is NFP time

In focus today

The most important data release of the week and a pivotal reading ahead of the September rate decisions will be the US August Jobs Report, due for release 14.30 CET today. We expect nonfarm payrolls growth to rebound to +170k after a weaker reading in July (+114k), unemployment rate to remain steady at 4.3% and average hourly earnings growth to continue at +0.2% m/m SA. After the release, FOMC key figures Waller and Williams are scheduled to speak, providing a prompt update on the Fed's perspective following the report.

In the euro area, we receive wage growth data for Q2 2024, measured as compensation per employee. The data is key input for the ECB's assessment of underlying inflation pressure. We expect wage growth to come in lower than the ECB's staff projections from June as the previously received negotiated wages indicator saw a large decline to 3.6% y/y in Q2 from 4.7% in Q1.

Early Monday morning, China releases CPI and PPI inflation for August. CPI is expected to rise to 0.7% y/y from 0.5% y/y mainly driven by food prices, while core should remain around 0.5% y/y reflecting overall weak demand. We look for PPI inflation to fall below -1% y/y from -0.8% y/y in July following the latest decline in commodity prices.

Economic and market news

What happened overnight

In Japan, household spending for July was much weaker than expected at -1.7% m/m SA and 0.1% y/y (cons: -0.2% m/m SA, 1.2% y/y). This decline in consumption, which makes up over half of economic output, could likely complicate the Bank of Japan's plans to raise interest rates going forward.  

What happened yesterday

In the US, the streak of weaker-than-expected labour market releases continued, as ADP came in below expectations at 99k (cons: 145k), driven by a 16k decline in "professional and business services". July figures were also revised down. The reading aligns with the Challenger report, which showed an uptick in August layoffs, largely attributed to the tech sector.

The ISM non-manufacturing PMI was little changed at 51.5 in July (prior: 51.4, cons: 51.1), spurred by new orders and prices paid. This suggests that growth in the services sector business activity has remained solid. The final PMI data, also released yesterday, supported a similar picture. Akin to the recent labour market cooling, the ISM employment PMI fell to 50.2 from 51.1.

In the presidential election, Democratic candidate, Kamala Harris, had raised USD 300m in August, double that of Republican Donald Trump, according to NBC news. With the election approaching, we published our first US election monitor highlighting some of the key development in the presidential race. Until the election on 5 November, we plan to frequently update the monitor. For more details, please see US Election Monitor - Latest data shows Harris in a narrow lead, 6 September.

In the euro area, retail sales increased 0.1% m/m SA in July after falling 0.4% in June, showcasing that consumers remain reluctant with spending despite high employment and rising real incomes. While weak confidence is still weighing on consumption growth, we expect to see gradual improvement towards next year.

In France, Michel Barnier has been appointed as new French prime minister (PM). Having represented the EU in the Brexit talks and previously served as EU Commissioner and in various French governments, his appointment is a step towards more stable French politics. That said, there is no guarantee of success, as Barnier still risks losing a no-confidence vote in the National Assembly. Additionally, the government coalition is yet to be formed, with a highly fragmented new parliament.

In commodities space, OPEC+ announced that eight members of the cartel will extend their voluntary output cuts by two months, after oil prices have slumped in recent days.

Equities: Global equities fell again yesterday. However, there was a notable change in sentiment and market rotation during the US session. Cyclicals performed best in the US, primarily driven by a further lift in Tesla, with consumer discretionary leading the advances. The heavyweight stock is up 12% over the last five trading days. In Europe, defensives still outperformed, though not to the same extent as seen in the previous two days. In the US yesterday, the Dow was down -0.5%, the S&P 500 was down -0.3%, Nasdaq was up +0.3%, and the Russell 2000 was down -0.6%. Asian markets are very mixed this morning, with South Korea and Taiwan moving in opposite directions. Futures in Europe and the US are mostly lower, with tech/growth sectors dragging down.

FI: Yields traded sideways through most of yesterday's session as markets held their breath for today's US jobs report. The German curve was marginally lower across tenors, with the bulk of the action occurring in the afternoon following a series of mixed signals from US data: The ADP job creation came out to the soft side in August (actual: 99k, consensus: 145k), while the Services ISM saw stronger-than-expected new orders (actual: 53.0, consensus: 51.9). President Macron's nomination of Michel Barnier as the next French Prime Minister led to a slight tightening in the 10Y OAT-Bund spread by a few basis points, now at 70bp. Barnier's first task will be to gather support for the budget, which will likely be very challenging task.

FX: EUR/USD rose towards 1.11 during yesterday's session with all eyes on the US jobs report released at 14:30 CET today. If our NFP forecast is correct, we could see the momentum of a stronger USD continue. However, the USD may face downward pressure in the coming month as the Fed initiates its cutting cycle, and risk sentiment could remain positive.