10 July 2023
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NFP comes in below expectations

By Daniel Richards

June’s US nonfarm payroll report came in below expectations with a net gain of 209,000, compared with the predicted 230,000, in an indication that the remarkable resilience in the labour market this year might be starting to wane. May’s figure meanwhile was revised lower, from 339,000 on the initial print to 306,000, and April was also revised downwards. Nevertheless, the data is unlikely to deter the FOMC from a resumption in tightening at its July meeting as average hourly earnings rose 0.4% m/m, the same pace as in May after an upwards revision from 0.3%. Unemployment was in line with expectations at 3.6%, down from 3.7% in May.

Chinese CPI inflation was flat year-on-year in June, missing a predicted 0.2%, while core inflation was at 0.4%. Factory gate inflation meanwhile was even more sharply negative than expected at -5.4%, the sharpest drop since 2015. The weak price growth environment has raised concerns around the strength of the Chinese recovery this year, and heightened expectations of further stimulus measures to boost growth. US Treasury Secretary Janet Yellen has been in Beijing over the weekend, where she has made positive noises around US-China trade. Yellen was adamant that there was room for trade to grow despite any security tensions there might be between the world’s two largest economies.

German industrial production fell 0.2% m/m in May, missing the projected 0.0% and down from the 0.3% recorded in April. Energy production fell 7.0% and there was only weak growth in manufacturing. The German economy is facing challenges from energy constraints and weak Chinese demand, alongside the ongoing Eurozone challenges around inflation and tightening interest rates.

Today’s Economic Data and Events

  • Egypt CPI inflation, % y/y.

Fixed Income

  • US Treasury markets took the June non-farm payrolls numbers in their stride with the chances of a July 25bps hike now at more than 90%. The 2yr UST yield pulled back from the 5% handle it had been trading at most of Friday as the headline jobs number came in slower than expected and closed down a bit more than 3bps on the day to 4.946%. The 10yr UST yield moved higher, up 3bps on the day at 4.0616%. Overall Treasuries closed lower last week with the curve still deeply inverted at around 90bps on the 2s10s.
  • European bond markets pulled moderately higher on Friday but still closed softer for the week as a whole. Bund yields added 1bps to 2.632% on Friday while French and Italian bonds closed stronger. Gilt yields fell 1bps to 4.643%.
  • Emerging market bonds settled weaker last week with the Bloomberg EM USD index down 1.1% last week. Turkey 10yrs pulled stronger on Friday with yields down about 5bps to 8.893% on the USD bond while Saudi USD 10yrs closed weaker, with yields rising 5bps at 5.031%.


  • The dollar closed weaker against peers last week even as risk assets moderated. EURUSD rose by 0.7% on Friday to 1.0967, taking its weekly gain to 0.5% while GBPUSD added more than 1% over the week to 1.2839 with a gain of 0.8% on Friday alone. USDJPY moved lower last week, down 1.5% to 142.21 with Friday seeing a large move of 1.3%.
  • CAD was the laggard among major currencies last week with USDCAD up 0.2% to 1.3274. A drop of 0.7% on Friday wasn’t enough to outweigh weakness in the loonie earlier in the week. AUDUSD rose by 0.4% to 0.669 last week, propelled higher by about a 1% gain on Friday while NZUDSD rose by 1.4% to 0.621, helped by 0.9% rise on Friday.


  • There was a marked slump in global equity markets towards the end of the week last week as labour market data raised interest rate hike expectations. This was compounded in some East Asian markets as a number of Chinese companies went ex-dividend. This hit banking stocks in particular and the Hang Seng Finance index ended the week down 5.4%, compared to 3.0% for the Hang Seng and 0.3% for the Shanghai Composite.
  • In the US, the Dow Jones ended the week 1.1% lower, but gains earlier in the week shielded the S&P 500 and the NASDAQ from the losses on Thursday and Friday, and they managed to close up 0.1% and 0.5% w/w respectively.


  • Oil prices settled higher for a second week in a row with Brent up 4.8% to USD 78.47/b and WTI rising by 4.6% to USD 73.86/b. Markets are now pricing in the material tightening of balances in Q3 as Saudi Arabia’s additional cuts have begun to take effect, and have been extended in August, while other members of the OPEC+ alliance are also contributing to deeper or longer production cuts.
  • The US government will buy up another 6m bbl to rebuild the strategic petroleum reserve which will take place later in Q4 this year. The increments are still ways short of rebuilding the SPR to levels seen prior to the Russian invasion of Ukraine but will provide another element of structural support to the market.

Written By

Daniel Richards Senior Economist

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