Job openings decline in the US

The US JOLTS report for July showed the number of job openings fell to 7.67m, down from more than 7.9m a month earlier and the lowest level since the start of 2021. The total number of job openings in the US has dropped from more than 12m hit at the start of 2022 as workers have been pulled into the economy. But the seemingly voracious labour demand is cooling while unemployment has also been rising, focusing the Fed’s mind on the unemployment side of its mandate. Labour market data for August will be released later this week with the headline unemployment number to signal whether the Fed will proceed with a 25bps or even larger cut at its FOMC meeting in a few weeks.

The final estimates for the services PMI for the wider Eurozone economy came in softer than the flash estimate at 52.9 compared with 53.3. Germany’s services sector PMI dropped to 51.2 on the final estimate, down from 52.5 a month earlier while Italy’s services PMI slipped to 51.4 in August, down from 51.7 in July. France was the relative bright spot among the major European economies with a services PMI print of 55, unchanged on the flash estimate, as the effects of the Olympic Games in Paris helped to boost services demand. Overall the composite PMI for the Eurozone came in a 51.0 for August, down on the flash though the positivity around France helped it to increase m/m. In the UK, the final services PMI was stronger than the flash estimate, up to 53.7 from 53.3.

Producer price inflation in the Eurozone gave more evidence of disinflation to come with a decline of 2.1% y/y for July. On a monthly basis, though, inflation accelerated to 0.8%, ahead of the June print and higher than market expectations. The monthly print was actually the fastest pace since December 2022. A 25bps cut from the ECB is fully priced in by markets for the September 12 meeting though the pace of easing thereafter is shallower than what’s expected for the Federal Reserve. Policymakers in the Eurozone have seemed assured about the next move being a cut but have cautioned that inflation is still a risk for the regional economy.

The Bank of Canada cut rates by 25bps to take the overnight rate to 4.25% and BoC governor Tiff Macklem said it was “reasonable to expect further cuts” as inflation slows in the economy. The BoC has cut rates three times since the start of the year, preceding peer central banks like the Fed, ECB or Bank of England. Macklem also noted that the bank could use larger cuts based on their assessment of incoming data on Canada’s economy.

Today’s Economic Data and Events

• 10:00 GE factory orders Jul m/m: forecast -1.7%
• 13:00 EC retail sales Jul m/m: forecast 0.1%
• 16:15 US ADP employment change Aug: forecast 145k
• 16:40 US initial jobless claims Aug 31: forecast 230k
• 16:30 US continuing claims Aug 24: forecast 1.866m
• 18:00 US ISM services index Aug: forecast 51.2

Fixed Income

• US Treasuries extended their rally overnight as the soft job openings data raised expectations for an aggressive path of Fed easing. Yields on the 2yr UST dropped by almost 11bps to 3.7539% while the 10yr yield fell almost 8bps to 3.7552%. Atlanta Fed president Raphael Bostic said in a note that the Fed needed to “stay vigilant” on inflation even as he expected them to be on a “sustainable path” to target levels.
• Bank of Sharjah was the latest GCC borrower to mandate banks for a bond with a benchmark USD 5yr being offered around the T+125 area.

FX

• The US dollar reversed course yesterday on the disappointing job openings numbers. EURUSD added almost 0.4% to 1.1082 while GBPUSD gained 0.3% to close at 1.3147. Markets weren’t quite confident enough to let go of havens, however, with USDJPY down 1.2% to settle at 143.74 while USDCHF also fell, down about 0.5% at 0.8465.
• In commodity currencies, the Loonie strengthened even as the Bank of Canada cut rates for a third time. USDCAD fell 0.3% overnight to settle at 1.3506 while AUDUSD rose by 0.2% to 0.6725 and NZDUSD gained 0.2% to 0.6199.

Equities

• Equity markets largely remained downbeat overnight with tech firms leading the way lower. The Dow Jones index was essentially flat while the S&P 500 fell by 0.2%. European markets were catching up with some of the deeper sell-off in US markets earlier in the week with the FTSE down 0.4% and the EuroStoxx 50 index down 1.3%.
• Asian markets are on a softer footing today with the Nikkei down by 0.5% and the Hang Seng lower by 0.1%.

Commodities

• Oil prices dropped for a fourth day running with Brent futures down to USD 72.70/b, or a decline of 1.4%. WTI also dropped, down by 1.6%, to close below US 70/b for the first time this year. Press reports suggest that OPEC+ is likely to walk back its plans to increase oil production in Q4 given oil prices have fallen sharply in the summer months.
• Data from the API reported a draw in US stockpiles of 7.4m bbl last week along with declines in gasoline and distillate stockpiles. Official EIA data will be out a day later than usual thanks to a public holiday at the start of the week.