Morning Bid: Plotting for payrolls

12:37 am Monday, September 02nd, 2024

A look at the day ahead in European and global markets from Wayne Cole.

It’s been a quiet start to the month with holidays in the United States and Canada sapping liquidity ahead of a deluge of data culminating in U.S. payrolls on Friday. Wall Street and European stock futures were all little changed.

The Asian August PMIs were decent, with China’s Caixin popping up to 50.4, and above forecasts of 50.0, though it also showed the first decline in new export orders in eight months. Chinese shares still slipped, however, led by losses in the real estate sector.

Japan’s PMI also improved to 49.8, while business investment gained momentum in the second quarter. Markets still wager the BOJ will shy away from hiking in October, though the meeting is right at the end of the month and there will be a lot more data under the bridge by then. As long as the Nikkei doesn’t swoon, they might want to get back on track to normalising policy.

For the Fed, markets are betting the size of its September rate cut could depend on the payrolls report given Chair Powell flatly stated they did not want to see further weakness in the labour market.

A result in line with forecasts of +165,000 and 4.2% would likely see the chance of 50 basis points recede further, though it would take an extraordinarily strong report to make markets give up on 25 basis points.

Forecasts range from +100,000 to +208,00 and 4.1% to 4.4%, and anything like the latter reading would rekindle recession talk and have investors baying for half a point off rates. Futures are 100% for 25bp and 31% for 50bp.

Fed Governor Christopher Waller and NY Fed President John Williams happen to be speaking after the job data, giving the market a near-instant reaction.

Also important this week will be the ISM surveys, JOLTS job openings and ADP employment, trade and the Fed’s Beige Book.

The Bank of Canada is widely expected to cut its rates on Wednesday, with markets implying a 22% chance of 50 basis points given signs the economy flatlined in July.

For currencies, the euro was done no favours by wins for far-right parties in German state elections which added a fresh layer of political uncertainty around the fate of the EU. It’s pinned at $1.1050 with support down at $1.0948. The dollar has eased a touch to 146.00 yen, after an early top of 146.60.

Key developments that could influence markets on Monday:

– S&P Global PMIs for Germany, France, UK and EU

– Introductory statement by ECB bank supervisor Claudia Buch at Hearing of the Committee on Economic and Monetary Affairs of the European Parliament

(Reporting by Wayne Cole; Editing by Jacqueline Wong)