Friday's US payrolls data was weaker than expected.

• Geopolitics is likely to overshadow economics and data this week.  Tension on the Korean peninsula ratcheted up over the weekend with North Korean announcing it had conducted a sixth nuclear test on Sunday.  US markets are closed today for Labor Day, so liquidity is likely to be thinner than usual.  Congress will return from the summer break on Tuesday and will have to tackle the fallout from Hurricane Harvey as well as increasing the debt ceiling to avoid a government shut-down at the end of this month. 
• Friday’s US payrolls data was weaker than expected, with 156,000 new jobs added against a forecast for 180,000.  The unemployment rate increased marginally to 4.4% from 4.3% and average hourly earnings increased just 0.1% m/m (2.5% y/y).  July’s payrolls data was also revised down by 20k.  Both construction and manufacturing saw strong increases in jobs in August, but this was offset by weaker than expected growth in some services sectors (including leisure & hospitality and education & health). 
• Although the August jobs data is a little disappointing, it’s not bad enough to dissuade the Fed from proceeding with further monetary policy tightening this year, in our view, as other economic data remains solid. The August ISM manufacturing index and flash manufacturing PMI (also released Friday) were both higher than forecast, with the ISM index rising to a six year high. Last week, the second estimate of Q2 GDP showed the US economy grew 3% y/y, up from the initial estimate of 2.7%.  At this stage we retain our view that the Fed will hike by another 25bp in December, although we recognise there are a number of risks, including geopolitical, to this view.    
• Finally, China’s Caixin manufacturing PMI rose to a six-month high of 51.6 (data released at the end of last week), beating expectations, and the official manufacturing PMI was also higher than forecast at 51.7.    

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