USD — All eyes are on the Non-Farm Payrolls
The US employment report for July will be released on August 5. Increasing weekly jobless claims indicate that US labor markets are losing momentum. Compared to 170.5k at the end of March, the four-week moving average has risen above 240k. It seems that the anecdotal press coverage focuses more on job losses than hiring, but the reports appeared to be widespread. Nonfarm payrolls are the residual of all secured and lost jobs. It is estimated that several million jobs are gained and lost every month due to the size of the workforce.Economists expect US businesses to increase employment by 250k despite press reports. Assuming this is accurate, it would be the weakest job growth since December 2020, when 115k jobs were lost in the US. The number of nonfarm payrolls rose by an average of 375k in Q2 following an average of 539k in Q1 and 562k for all of last year. It’s partly about context, though. The 250k will be viewed as weak only due to the pandemic and response. The monthly average of nonfarm payrolls was never more than 200k in any of the four years before Covid.
In last week’s meeting, the FOMC raised rates by 75 bps, bringing the Fed Funds rate from 1.75% to 2.50%. Despite softer spending and production, job gains remain strong. In spite of the softer data, the Fed anticipates continued increases in interest rates. According to Powell, however, rate decisions will be made based on the incoming data at each meeting. Powell cited the possibility of another “unusually large” interest rate hike, while at the same time stating that it could be appropriate to slow the pace of increases as rates increase.
Furthermore, Powell said he doesn’t consider the US economy to be in a recession (despite its textbook definition as “two consecutive quarters of negative growth”). For now, the Fed is dependent on data. The Fed may continue to raise rates if the labor market remains strong. Nevertheless, if the labor market cracks, the Fed could slow down rate increases.
EUR — Data in the spotlight after ECB’s decision
Over the past week, the Euro edged up against the US Dollar just slightly. A depreciating dollar allowed the single currency to capitalize on broad-based weakness in the Greenback. Economic news in the Euro-Area is relatively thin this week, so EUR will likely be influenced by external factors. It might make sense to take a look at what’s going on in the U.S. in this case. Nonetheless, recent comments from the European Central Bank have been increasingly hawkish. However, it’s still way behind the Fed.As far as central banks are concerned, this is quite an unusual situation. Although growth is slowing, inflation still runs hot, possibly because of tight labor markets. This may be considered stagflation by some. The US labor market continues to be robust despite the pandemic and unemployment is quite low. Does this mean the jobs market can withstand any deterioration in growth? Maybe.
S&P Global Manufacturing PMIs will be released on Friday, alongside the industrial production figures for Germany, France, and Italy. According to the latest Flash PMIs, the eurozone economy is expected to have deteriorated in July across all three nations. After a year of surging inflation and growing uncertainty, the end-of-quarter retail sales figures will likely shed light on Eurozone spending trends.
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Source: Weekly Market Outlook: US NFP, PMIs & More Rate Hikes