Weak jobs data expected, but will it move the needle?

European markets have started off the day on a positive footing despite somewhat mixed data coming out of the region. A surprisingly weak factory orders figure from Germany saw the third consecutive month of contraction, falling 2.9% despite expectations of a 0.5% rise. Meanwhile, retail sales data out of the UK came in weaker than expected, with the 1.1% rise falling short of the 1.3% growth anticipated by markets. Notably we continue to see retail sales value growth outstripping the rise in volumes, with above-target inflation meaning that consumers will continue to see the value of their money deteriorate over time.

Brent crude has been hit hard over the past two trading days, with fears over the US economy accompanied by expectations of another production increase from OPEC this Sunday. Notably, Putin’s recent comments that he can see light at the end of the tunnel for the Russia-Ukraine war shouldn’t raise too many hopes as he has since said that any Western forces in the region would be deemed legitimate targets for his military. Whether that remains the case after a peace deal remains to be seen, but the Russian stance that Ukraine must be neutral after the war would stand in stark contrast to the European view that there should be a global Western coalition of military protecting Ukraine after the conflict ends. Oil prices will undoubtedly come into focus as we move closer to the weekend, with OPEC+ expected to announce an October production increase on Sunday.

Today is all about the US jobs data, with markets expecting more of the same after a week that has been dominated by downbeat assessments of the US employment situation. With job openings falling, ADP payrolls down to measly 54k, and job cuts on the rise, it will come as no surprise if we saw a similarly pessimistic reading from today’s non-farm payrolls release. Crucially this would build on a period of weakness, with the revisions seen last month meaning that we have seen a mere 106k rise in payrolls over the course of May-July. Meanwhile, the recent pattern of negative revisions for previous months means the already unimpressive 73k reading from last month could easily be due a haircut. We are yet to see the data seen this week move market expectations for Fed easing, and thus traders will be watching closely to see if today’s report finally moves the needle in terms of convincing the crowd that three 2025 rate cuts looks a likely scenario. The lack of any notable breakout in gold or silver highlights the relative stability around rate expectations thus far, although the dollar has been heading lower in anticipation of further payroll weakness.