Markets quiet down ahead of US NFP report
What’s been happening?
Pound Sterling – UK Markets
The pound sterling stayed relatively quiet on Thursday amid a lack of macroeconomic data releases from the UK and finished the day virtually unchanged against both the euro and the dollar. Despite some positive development surrounding Brexit negotiations, JP Morgan analysts argued that the tail-risk around Brexit was likely to intensify toward the end of the year and that would remain as the primary concern for investors. “In our view from a banks perspective, the immediate near-term risk is that an agreement that removes the risk of a no deal slips into 2019," JP Morgan said.
The EU’s Chief Brexit Negotiator Michel Barnier met his British counterpart Dominic Raab on Thursday. Although journalists haven’t received a transcript of the meeting, Margaritis Schinas, a spokesman for the EU Commission, told reporters that the Chequers plan contained some “positive elements.”
US Dollar – US Markets
The monthly report published by the ADP on Thursday revealed that private sector employment increased by 163,000 jobs from July to August compared to analysts’ estimate of 190,000. “Although we saw a small slowdown in job growth the market remains incredibly dynamic, midsized businesses continue to be the engine of growth, adding nearly 70 percent of all jobs this month, and remain resilient in the current economic climate,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. The initial market reaction to the data weighed on the US Dollar Index, but the upbeat PMI figures helped it retrace its losses and finish the day above the 95 mark.
According to the August 2018 Non-Manufacturing ISM Report On Business, the headline PMI figure improved to 58.5 from 55.7 in July to represent continued growth in the service sector at a faster rate. “There was a strong rebound for the non-manufacturing sector in August after growth ‘cooled off’ in July. Logistics, tariffs and employment resources continue to have an impact on many of the respective industries. Overall, the respondents remain positive about business conditions and the economy,” the ISM summarised.
Meanwhile, speaking at a panel in Buffalo, New York, New York Fed President Williams repeated his view that the Fed didn’t need to raise rates further in the short-term in the absence of inflationary pressures and added that the slow wage growth suggested that the Fed had room to be patient. However, Williams’ comments were largely ignored by the investors as his dovish stance was not surprising.
Euro – European Markets
The data from Germany showed that factory orders contracted by 0.9% on a monthly basis in July after declining 3.9% in June and missed the market consensus of an increase 1.8% by a wide margin. With this monthly fall, the annual change slumped to -0.9%. Member of the ECB's Executive Board, Sabine Lautenschläger, didn’t touch on the monetary policy outlook in her speech on Thursday. In the meantime, in an interview with El Pair, Pierre Moscovici, European Commissioner for Economic and Financial Affairs, commented on the possibility of Italy having a budget deficit greater than 3% of its GDP. “Obviously, returning to 3 percent would be a big step back. It is in (Italy’s) interest to reduce its public debt,” Moscovici said.
What’s coming up?
UK: The Bank of England will publish the Consumer Inflation Expectation on Friday. Halifax House Prices will also be featured in the UK economic docket.
US: The nonfarm payroll report from the U.S. will be the highlight of the day on Friday. Markets expect the NFP to rebound to 191K in August from 157K in July. Furthermore, the report will include average hourly earnings, labour force participation rate, and unemployment rate figures as well.
EU: The only important data from the euro area on Friday will be the Q2 real-GDP growth, which is expected to stay unchanged at 0.4% and 2.2% on a quarterly and yearly basis respectively.