Private sector payrolls growth cools in US

The ADP report of private sector payrolls in the US increased by 99k in August, well below market expectations of closer to 150k and below the prior month’s estimate of 122k. Most of the jobs added were in education and health services along with construction. Manufacturing and professional services both shed jobs. The ADP and the non-farm payrolls have an inconsistent track record so the ADP may not be setting markets up for a disappointing NFP out later this evening. Market expectations are for 165k jobs to have been added in August while the unemployment rate is expected at 4.2%.

Elsewhere on labour market data, initial jobless claims in the US for the week ending August 31 dropped to 227k, down from 231k a month earlier. Continuing claims also fell and were fewer than market expectations, coming in a 1.838m as of August 24, down from 1.868m a week earlier.

The ISM services index for August in the US held essentially steady at 51.5, up marginally from 51.4 a month earlier. Prices paid did increase in August while the employment subcomponent did drop but stay above the neutral 50 level. New orders improved to 53, up from 52.4 a month earlier.

The Central Bank of Egypt kept rates unchanged at its MPC meeting overnight, holding the deposit rate at 27.25%. according to the CBE, “current policy rates remain appropriate…until a significant and sustained decline in inflation is realized.” Headline inflation Egypt has been slowing in recent months following a devaluation of the Egyptian pound earlier this year. Egypt’s net international reserves increased to USD 46.597bn in August, up from USD 46.489bn a month earlier. Reserves have increased substantially this year, helped by bilateral investments from the UAE as well as multilateral assistance from the IMF and other counterparties.

Today’s Economic Data and Events

10:00 GE industrial production m/m July: forecast -0.5%

13:00 EC GDP q/q Q2 (final): forecast 0.3%

16:30 US change in nonfarm payrolls Aug: forecast 165k

16:30 US unemployment rate Aug: forecast 4.2%

Fixed Income

• US Treasuries remained on an upswing with moderate data out from the US overnight. Yields on the UST 2yr fell by 1bps to 3.7435% while the 10yr UST yield fell nearly 3bps to 3.7269%. The curve is currently only modestly inverted and close to ending a session in a normalized slope, usually an indicator of economic distress ahead.
• Bond markets generally were positive overnight with gains across European markets while emerging market and high yield bonds also closed higher.
• Al Ahli Bank of Kuwait is pricing a USD 300m perp NC 5.5yr. Initial pricing was around 6.5% according to press reports.

FX

• The dollar gave up ground for a second day running overnight as data seemed to affirm the need for the Fed to cut rates over the next several FOMC meetings. EURUSD added 0.3% to 1.1111 while GBPUSD gained about the same amount to settle at 1.318. USDJPY extended its move lower, down 0.2% at 143.45 while USDCHF also maintained a move in favour of the franc, falling 0.3% to 0.844.
• Commodity currencies were also positive though USDCAD was relatively contained. AUDUSD added 0.2% to 0.6741 while NZDUSD gained 0.4% to settle at 0.6224.

Equities

• US equity markets remained on the back foot ahead of the release of today’s labour market data from the US. The Dow Jones index fell 0.5% while the S&P 500 dropped by 0.3%. European markets were likewise weaker with a 0.7% decline in the EuroStoxx 50 and the FTSE closed lower by 0.3%.
• Asian markets closed with a weaker tone overnight with the Nikkei down 1.1% while the Hang Seng closed near unchanged, though with a downward bias. Markets in China fared a little better with the CSI up 0.2%.
• UAE markets had a stronger day with the DFM up 0.1% while the ADX gained 1.1%. The Tadawul dopped, however, by 0.2%.

Commodities

• Oil prices ticked lower overnight, showing limited response to the OPEC+ plan to delay expected production increases until later into 2024. Brent futures closed at USD 72.69/b, essentially unchanged, while WTI was a shade lower at USD 69.15/b, down 0.1%.
• OPEC+ agreed to delay the planned production increase among those countries making additional voluntary cuts until December 2024, rather than October, and have shifted their planned production increases in 2025 back by several months. In their statement, the producers alliance noted that they could adjust their plans as needed. There was also a reinforcement of the need for Iraq and Kazakhstan to make accommodation cuts to make-up for over-production in previous months.
• US crude inventories dropped by nearly 7m bbl last week, leaving them well below average levels of the last several years. Gasoline inventories were marginally higher. US production was steady at 13m b/d.