The main features this week are China (Wed) and US inflation data (Thu) and the ECB’s rate decision. We will hear from the ECB’s Nagel and Galhau, and BoE’s Breeden on Tuesday. China PPI and CPI data kick-starts Wednesday and we have US wholesale inventories, PPI and mortgage applications. The ECB’s Buch gives a keynote speech later. The ECB is expected to hold rates on Thursday, and we will hear from the central bank’s President Lagarde, and later we have US CPI, initial jobless claims and the federal budget balance. Germany CPI, UK industrial production and the Uni. of Michigan sentiment prints will garner attention on Friday.
Last week, global markets were primarily affected by weaker-than-expected US labour market data. The disappointing data increased investor expectations for a Fed rate cut, which broadly boosted risk appetite and drove a rally in USTs and equity markets. The yield on the 10-year rallied 15bps to 4.08%, reaching its lowest level since early April. Meanwhile, the S&P Index closed the week 0.33% higher. The dollar (DXY Index) was flat, and Brent crude fell 3.85% to $65.50pb amid supply glut concerns.
US data was broadly subdued; the ISM manufacturing fell further into contraction with the employment component surprising to the downside at 43.8. Following a weaker-than-expected job openings report and the release of the Fed’s Beige Book, which both signalled a significant slowdown in the US economy, the futures market increased the probability of a rate cut at this month’s FOMC meeting. The job data showed a broad increase in layoffs to a one-year high, while the Beige Book reported flat or declining economic activity and a softening labour market across most regions. In contrast the ISM services surprised to the upside.
However, the main event was the August jobs report, which showed significant weakness in the labour market. The US economy added just 22k jobs in August, far below the forecasted 75k. Additionally, the unemployment rate ticked up to 4.3%, the highest since 2021, and the June jobs figure was revised down to show a loss of 13k jobs, underscoring a cooling labour market. China’s trade data, released this morning, missed expectations. While the overall trade growth in August slowed to its weakest in six months and exports to the US plunged 33%, a more positive view emerges from the country’s trade diversification and resilience. Exports to other major partners are showing significant strength, with shipments to the EU climbing 10.4%, while those to ASEAN surged 22.5% during the month. This shift is part of a broader trend, as ASEAN has replaced the US as China’s largest trading partner. This strategic pivot, combined with strong exports of high-tech products like integrated circuits and automobiles, which grew 9.2% for the year, indicates a positive long-term outlook for China’s trade.
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