Fed Chair Jerome Powell recently emphasised that the Federal Reserve does not welcome any further weakening in the labour market. Traders have decided that a rate cut by the Fed in September is imminent, but they are now scrutinising the latest US jobs data to consider whether there is enough slack within the labour market to prompt a cut of 50 basis points instead of 25. Following a significant downward revision of 89,000 jobs added in July, Friday’s non-farm payrolls showed further evidence that labour market momentum is cooling, illustrating an increase for the month of August of 142,000 jobs – far less than economists expected. A JOLT report on Wednesday also highlighted that job openings fell to 7.67 million in August, the lowest level since January 2021. This has resulted in a reduction of the job-to-applicant ratio to below 1:1.
But before traders argue that this data better lends itself to a 50 basis cut, one should also consider that unemployment dropped in August to 4.2% from July’s 4.3%. This shows that while the labour market is beginning to lose its simmer, it has not lost heat altogether, rather appearing to be slowing in a measured way. Coupled with this, Friday’s data showed solid wage growth in August which should continue to bolster consumer spending and prevent growth from stagnating in a way that could cause a headache for policymakers and prevent their so-called ‘soft landing’.
Even though the data does not point to the risk of recession in the US, the weaker jobs report made investors exercise caution, with the S&P 500 ending down about 4%.
OPEC+ announced on Thursday that it would delay a planned oil output increase for October and November. The decision comes as crude oil prices hit a nine-month low, driven by weaker demand forecasts from China, the world’s largest oil importer. The extension of voluntary production cuts, totalling 2.2 million barrels per day, will now continue at least through the end of November with the hope of stabilising prices during that time.
In a move to break France’s political deadlock, President Emmanuel Macron has appointed Michel Barnier as Prime Minister. Barnier faces the daunting task of advancing the 2025 budget and pushing through various reforms in a parliament still largely divided. He has garnered conditional support from the National Rally, although they have warned they could withdraw their backing if issues such as immigration are not addressed in a way they deem sufficient. This dynamic increases the National Rally’s influence over the new Prime Minister and fosters his dependency on their political demands.
Meanwhile, in Ireland, July’s unemployment rate figure cut a 28-month high for the region at 4.7%, but this has dropped substantially to 4.3% in August, data revealed on Wednesday.
Coming up this week we have UK GDP, UK unemployment rate and information on Chinese exports and imports. The European Central Bank will also meet on Thursday to discuss interest rates, with markets pricing in a 25 basis point cut.
Nicola Tune, Portfolio Specialist
