Futures and global markets are higher ahead of the NFP today at 8:30am ET (full preview here). At 7:40am ET, S&P futures rose 0.3% to 4,531 with Nasdaq futures up 0.2%. Major global markets are also higher, led by the UK (UKX +0.5%, SX5E +0.4%, SXXP +0.4%, DAX +0.1%), with the final Eurozone Mfg PMI is revised lower to 43.5 from 43.7, further boosting odds the ECB is done. On September ECB, Greg Fuzesi thinks that the July minutes and Isabel Schnabel’s comments yesterday (“growth had “moderated visibly”) both consistent with a pause in September ECB. He expects the final hike to happen in October after a pause in September. China reduced banks’ reserve requirement of foreign currency deposits, boosting the yuan, while China's Caixin Mfg PMIsurprised to the upside: 51.0 vs. 49.0 survey vs. 49.2 prior. Bond yields are lower and the Bloomberg dollar index is flat. Commodities are mostly stronger led by oil. Key macro focus will be the labor data release today (NFP, Unemployment Rate, Avg. Hourly Earnings, Labor Force Participation) at 8.30am ET and the Mfg ISM at 10am ET.
In premarket trading, Broadcom dropped as much as 4.6% after its revenue forecast disappointed, signaling that demand for electronic components remains sluggish. Dell Technologies jumped 10% after it reported better-than-expected second-quarter revenue, driven by personal computers and data center hardware sales. US-listed Chinese stocks advanced in premarket trading after Beijing and Shanghai both eased housing rules, a sign of further government support toward the economy. Here are some other notable premarket movers:
Friday’s payrolls report (previewed here) should provide further evidence of cooling in the still-tight US labor market. The question is whether that will be enough to stall the Federal Reserve’s tightening cycle or even lead to early rate cuts. Meanwhile, a rapidly weakening economy is likely to tilt the European Central Bank in favor of a pause this month, with no further hikes beyond the current rate of 3.75%, according to Morgan Stanley economists.
Consensus expects a 170K NFP print with unemployment unchanged at 3.5%, and average hourly earnings dropping to 4.3% YoY from 4.4%. Here is a breakdown of payrolls forecasts by bank:
“I’m personally more inclined toward the soft landing scenario given the resilience of the labor market and inflation slowing down, so I’m not expecting any catastrophic numbers this afternoon,” said Harry Wolhandler, head of equities at Meeschaert Asset Management in Paris. “In any event, should there be bad surprises, the Fed now has room for maneuver to lower rates.”
The Stoxx Europe 600 index rose 0.3%, trimming a bigger gain earlier in the session, with energy majors outperforming as crude oil headed for the biggest weekly advance since April. Miners jumped as China’s latest stimulus measures boosted prices of some industrial metals. Car makers declined, with Renault SA and Volkswagen AG falling more than 3% each after being downgraded to sell by UBS Group AG on increasing competition from Asia. Aurubis AG slumped as much as 18% after Europe’s top copper producer said it faces large losses due to a massive metal theft. Here are the other notable European movers:
Earlier in the session, Asian stocks advanced and headed for their second weekly gain, as Chinese equities climbed following more stimulus measures from Beijing. Japan’s benchmark also rose, eyeing an historic milestone. The MSCI Asia Pacific Index rose as much as 0.5%, led higher by Samsung and several Japanese firms.
China shares traded higher and metals looked set to extend this week’s advances after China's government allowed the nation’s largest cities to cut down payments for home buyers and encouraged lenders to lower rates on existing mortgages as well as on deposits. Meanwhile, Shanghai and Beijing eased home-buying mortgage rules for residents. Hong Kong’s market was shut as the city braced for what may be the strongest storm to hit in at least five years.
The yuan also strengthened after China’s central bank reduced the foreign exchange reserve requirement ratio for financial institutions in a bid to support the currency. The currency has since pared its gains. Sentiment was further buoyed by an unexpected rise in manufacturing data that advanced to 51 in August, the highest reading since February, according to a Caixin survey.
Japan’s Topix benchmark gained nearly 1%, boosted by Sony, putting it on course for its highest close since 1990. The index posted its eighth consecutive month of increase in August — the longest winning streak since 2013 — and the gauge was now set for the best weekly advance since October. Data earlier showed companies’ profits rose 11.6% on an annual basis in the second quarter.
Australia's ASX 200 declined further under 7,300 and was weighted by its metals names as Fortescue Metals slumped after its CFO left three days after the CEO's departure. Korea's KOSPI was underpinned by the South Korean trade data which printed better than feared.
Indian stocks posted their biggest advance in two months on Friday as metals and utilities led the rally across sectors after strong economic data boosted investor sentiment. The S&P BSE Sensex Index rose 0.9% to 65,387.16 in Mumbai, while the NSE Nifty 50 Index advanced by a similar measure as both gauges surged the most since June 30. The sharp move pushed the benchmarks by at least 0.7% higher for the week, snapping their retreat for preceding five weeks. Stocks in India have been receiving a chunk of foreign flows coming to emerging markets. For August, foreigners bought $1.6 billion of local shares while selling Taiwan, South Korea and Indonesia, and extending a selloff in China.
In FX, the Bloomberg Dollar Spot Index was little changed on Friday but down 0.2% this week, set to halt six straight weeks of gains after data showed the Federal Reserve’s preferred measure of underlying inflation posted the smallest back-to-back increases since late 2020. Focus now is on US payrolls data later on Friday, which is expected to show the US labor market likely cooled in August
Further dollar declines could be limited. “The path to more pronounced dollar depreciation — further moderation in the US economic data, including nonfarm payrolls report, combined with less negativity abroad — has been narrowing lately,” wrote Goldman Sachs strategist Karen Fishman, and since Goldman's sellside desk is always wrong, it means the dollar is about to crater.
In rates, treasuries were mixed in early US trading ahead of the August employment report, with the curve steeper. With Fed swaps pricing in about 50% odds of another rate hike this year, report is anticipated to show 170k nonfarm payrolls increase, smallest in more than two years; crowd-sourced whisper number is 155k. Yields remain within 2bp of Thursday’s closing levels; Thursday’s ranges included weekly lows for 10-year to 30-year tenors. 2s10s and 5s30s spreads are wider by 2bp-3bp, paced by curve-steepening in most euro-zone bond markets. The economic calendar also includes August final S&P Global US Manufacturing PMI at 9:45am, July construction spending and August ISM manufacturing at 10am and August vehicle sales throughout the day.
In commodities, oil is set for a weekly gain after Russia signaled that it would extend export curbs and US inventories dropped further. Gold headed for the second weekly advance.
Looking to the day ahead now, and the main highlight will be the US jobs report for August. Otherwise, we’ll get the global manufacturing PMIs for August and the ISM manufacturing reading from the US. From central banks, we’ll hear from the Fed’s Bostic and Mester.
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APAC stocks traded mixed following a similar lead from Wall Street, whilst Hong Kong markets were closed due to Typhoon Saola. ASX 200 declined further under 7,300 and was weighted by its metals names as Fortescue Metals slumped after its CFO left three days after the CEO's departure. Nikkei 225 opened in the red but quickly trimmed losses with the rebound spearheaded by the energy sector. KOSPI was underpinned by the South Korean trade data which printed better than feared. Shanghai Comp opened firmer after large Chinese banks cut their deposit rates, while the PBoC also lowered down payment for first and second-time home buyers and announced a cut to the FX RRR. Modest upticks were seen after the Caixin PMI Finals were surprisingly revised into expansion territory.
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European bourses are in the green, Euro Stoxx 50 +0.3%, as modest upside creeps in following a tentative/slightly subdued open with fundamentals light ahead of key US data. Sectors are primarily positive, Energy the clear outperformer after an MS upgrade and broader benchmark action while Autos lag following a negative Volkswagen broker move and as Tesla cuts prices in China for some models. Stateside, futures are in-fitting with Europe and are slightly firmer, ES +0.2%. with the tone equally as tentative before NFP & ISM Manufacturing.
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DB's Jim Reid concludes the overnight wrap
Welcome to September and to an early month payrolls Friday. Spare a thought for me this weekend as I’ll be refereeing 40 plus over excited 6 year olds playing Laser Quest as our twins have their birthday party on Sunday. My advice to all the graduates just joining the industry and reading this is to have your kids young while you have lots of energy. Then when you get to my age you can have easy paced relaxing weekends rather than the ones I have. I'm going to be especially exhausted by Monday.
Since it’s the start of the month, we’ll shortly be releasing our monthly performance review for August, which has been a pretty challenging one for financial markets albeit one where markets had a much better last week or so. In the month we had a further softening in the economic data, particularly in Europe and China, which has led to growing concern about the near-term outlook. At the same time, there’s been rising speculation that interest rates are set to remain higher for longer, and earlier in the month we even saw the 10yr Treasury yield hit a post-GFC high after both a US government debt downgrade and a much higher Treasury issuance profile announced than expected. So a lot going on in a holiday heavy month. See the full report in your inboxes shortly.
August might not have been a great month overall, but since Jackson Hole last week, we’ve actually had a decent market rally though one that lost a little momentum in the last 24 hours. Yesterday saw the S&P 500 (-0.16%) end a four-day winning streak after a sell off late in the US session, whilst the 10yr Treasury yield (-0.7bps) retreated for a 5th day running. Fresh China stimulus overnight (more below) has restored a little momentum as we start September.
For much of the final day of the month yesterday, markets were supported by the data alongside several central bank speakers who sounded cautious about further rate hikes. For instance in the US, the weekly initial jobless claims fell back to 228k over the week ending August 26 (vs. 235k expected), which is their third consecutive decline. Furthermore, the PCE inflation numbers for July were also in decent shape, and that’s the number the Fed officially targets. The important takeaway was that the year-on-year number for core PCE only rose a tenth to 4.2%, which is beneath the 4.3% estimate that Chair Powell cited in his speech last week. So things are running a bit better than the Fed was expecting even a week ago. Slightly concerningly, the supercore services measure often referred to by the Fed was up a strong +0.45% on the month. But more encouragingly, our US economists noted that the 1-month annualised rate of trimmed mean PCE was only +2.4%, its lowest since spring 2021. So take your pick.
In conjunction with the inflation data, we had several remarks from central bank officials that added to hopes they might be done with their rate hikes. That included Atlanta Fed President Bostic, who said that “I feel policy is appropriately restrictive”, and that “we should be cautious and patient and let the restrictive policy continue to influence the economy, lest we risk tightening too much and inflicting unnecessary economic pain.” Meanwhile at the ECB, Isabel Schnabel of the Executive Board said that recent developments “point to growth prospects being weaker than foreseen in the baseline scenario” in the June projections. She also said that whilst further rate hikes could be warranted, there was also an acknowledgement that “should our assessment of the transmission of monetary policy suggest that the pace of disinflation is proceeding as desired, we may afford to wait until our next meeting”. We also got the accounts of the ECB’s July meeting, which showed a moderation of the ECB’s hawkish bias. See our European economists’ reaction note here.
When it comes to the ECB’s decision in a couple of weeks, yesterday brought another piece of the jigsaw with the flash CPI print for August. That showed headline inflation remaining at +5.3%, whilst core inflation fell back two-tenths to +5.3%. While the core print was in line with consensus, our economists note that the underlying momentum was more encouraging, with services inflation easing slightly despite upside in volatile package holidays. The global trend, the inflation data, and the Schnabel remarks helped dial back the chances of a rate hike in September, with market pricing moving from a 55% chance at the previous close, down to 40% immediately prior to the CPI print (after Schnabel’s comments) and to 24% by the close. That’s the lowest chance the market has given a September hike since May, so as it stands we’re getting to the point where it would actively be a surprise if the ECB didn’t pause. In turn, those expectations of a pause led to a significant rally among European sovereign bonds, with yields on 10yr bunds (-8.1bps), OATs (-8.3bps) and BTPs (-7.7bps) seeing big declines.
Looking forward, we’ve got a couple of important releases today that might give us extra clues on the hard vs soft landing debate. The most important will be the US jobs report for August, which is out at 13:30 London time. Our US economists expect nonfarm payrolls growth to slow to +150k (consensus at +170k). That would be the slowest print since December 2020, and they see that causing the unemployment rate to move up a tenth to 3.6%. The other release of note will be the ISM manufacturing, which has now been in contractionary territory for 9 months in a row.
With another round of data to look forward to, US equities were in something of a holding pattern. Having started the day up by nearly +0.4% in the morning, the S&P 500 ended up closing -0.16% down after a late sell-off. Healthcare services (-2.65%) and banks (-0.73%) were among the underperformers. Meanwhile, tech stocks outperformed, with the NASDAQ (+0.11%) hitting a 4-week high as it eked out a fifth consecutive gain. Over in Europe, equities saw a subdued performance, with the STOXX 600 down -0.20%.
Asian equity markets are trading higher this morning as China ramped up its efforts to support the economy after the People’s Bank of China (PBOC) reduced the amount of foreign exchange that financial institutions must hold as reserves for the first time this year. Starting from September 15, the central bank will lower the forex reserve ratio to 4% from the current level of 6%, a move aimed at reining in yuan weakness. The offshore yuan did spike +0.5% on the news but has settled only +0.1% higher as we type. Additionally, China’s Caixin manufacturing PMI rose to 51.0 in August, the highest reading since February compared to a level of 49.2 in July.
In terms of equity market moves, the Nikkei (+0.53%) is leading gains overnight, while the CSI (+0.51%), the Shanghai Composite (+0.25%), and the KOSPI (+0.17%) are also trading in positive territory. Elsewhere, trading in Hong Kong has been suspended for today as the city is bracing itself for super Typhoon Saola. S&P 500 (+0.10%) and NASDAQ 100 (+0.07%) futures are trading slightly higher.
Looking back at yesterday’s other data, there was a decent +0.8% jump in US personal spending in July (vs. +0.7% expected) supporting the evidence of strong start to the quarter. However, the savings rate fell back to an 8-month low of 3.5% and incomes were a tenth below expectations at +0.2%. Otherwise, the MNI Chicago PMI for August rose to a one-year high of 48.7 (vs. 44.2 expected) and 42.8 last month. Earlier in the day, German retail sales for July disappointed (-0.8% vs +0.3% expected) in a latest sign of growth struggles for Europe’s largest economy.
To the day ahead now, and the main highlight will be the US jobs report for August. Otherwise, we’ll get the global manufacturing PMIs for August and the ISM manufacturing reading from the US. From central banks, we’ll hear from the Fed’s Bostic and Mester.