05 September 2022
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US jobs gain exceeds expectations as labour force expands

By Daniel Richards

  • US nonfarm payrolls recorded a net gain of 315,000 in August, somewhat higher than the consensus projection of 298,000 but still marking a slowdown from the 526,000 net gain in July (revised down by 2,000). Despite the net gain in jobs, the unemployment rate rose to 3.7% as the labour force expanded – the participation rate has risen to 62.4%. The gains were spread across all key components of the workforce, with lower-paid services as usual providing the bulk of the expansion. Average hourly earnings rose by 0.3% m/m (predicted 0.4%) to stay stable at 5.2% y/y. The data diminishes the likelihood that the Federal Reserve will follow up with a third 75bps hike, but there remains a high level of uncertainty and the Fed clearly still has work to do. The CPI inflation reading for August next week will be key to watch for as markets try to gauge just how hawkish the Fed will be at its September meeting, but the uptick in the workforce suggests that the labour market tightness is starting to weaken.
  • While the labour market has remained robust, there has been more evidence of a slowdown in activity in the US in other data, not least the factory orders for July which contracted -1.0% as opposed to the consensus expectation of modest (0.2%) growth. This marked a sharp slowdown from the 1.8% seen in June (revised down from 2.0% on the previous reading) and was the worst steepest drop since April 2020 in the midst of the pandemic crisis. Non-durable goods led the decline as they fell -1.9% m/m.
  • The German government has pledged EUR 65bn to be allotted to help households hit by the mounting energy crisis, with EUR 40bn from the central government and a further EUR 25bn to come from regional governments. This will be in part funded by a cap and potential redistribution of profits by energy firms.
  • The energy situation in Europe was already looking parlous for households and businesses this winter and now looks even worse following Russia’s announcement on Friday that the Nord Stream 1 pipeline would be closed indefinitely, and EU ministers will discuss options to deal with the crisis this week, with price caps and a suspension of derivatives trading options on the table. Rising energy prices have already pushed Eurozone inflation to a record 9.1% y/y in August, with the ECB meeting this week and likely to implement another large interest rate hike.

Today’s Economic Data and Events

  • 11:00 Turkey CPI, August, % y/y. Forecast: 81.0%
  • UK Conservative Party leadership results, Liz Truss expected winner
  • US markets are closed for Labor Day
  • Regional PMIs are released this morning and will be covered in a separate note

Fixed Income

  • A mixed but still positive August nonfarm payrolls report helped to support US Treasuries at the end of the week as the relative slowdown in job and wage growth meant that expectations for a 75bps hike at this month’s FOMC have been pared back. Yields reacted sharply to the jobs data with the 2yr yield falling about 10bps in immediate response and closing the day down 11bps at 3.3873%. The drop on Friday meant yields were essentially unchanged over the week. Yields also fell heavily on the 10yr, down more than 10bps in response to the jobs numbers and closing the day down 6bps at 3.1894% though over the week the long end still rose by almost 15bps.
  • Markets pricing for the September FOMC have shifted lower though is still roughly split between a 50bps and 75bps hike. The jobs numbers and other mixed data would still support a 50bps hike this month though the August inflation print will be the more crucial factor for the Fed to consider.
  • The European Central Bank is in focus this week as another large hike in policy rates is expected. European bonds had been selling off in anticipation of tighter policy but also as the broader economic outlook deteriorates. Russia will not restart the Nord Stream gas pipeline to Germany, threatening the Eurozone with energy rationing and slower economic activity. Nevertheless Friday managed to be a decent day for regional bonds with 10yr bund yields down about 4bps to 1.516% and Italian 10yr yields down almost 9bps to 3.82%.
  • In the UK though the relentless rise in gilt yields continued apace, up 4bps last week to 2.914%. Since the start of August 10yr gilt yields have risen 124bps in the face of hiking expectations from the Bank of England and a weakening near-term economic outlook.
  • A general risk-on mood helped to support most emerging market bonds at the end of the week. The 10yr South African yield dropped 21bps to 10.75% while Turkey 10yr yields fell 14bps to 12.43%. Indian bonds were weaker with yields up slightly by 2bps at the end of the week to 7.233%.
  • Apart from the ECB, the Reserve Bank of Australia and Bank of Canada also set policy.


  • A turn in sentiment at the end of the week helped to push the dollar lower against most peers though it still managed a strong weekly gain. EURUSD dropped 0.12% over the week to settle again below parity at 0.9954 while USDJPY has broken and held above the 140 level, rising by 1.9% over the week. GBPUSD was the major victim of dollar strength last week, down 2% to 1.1509 as markets appear to be losing confidence in the ability of British policymaking to respond to the economic challenges facing the country.
  • In commodity currencies rising recession fears weighed on the markets with USDCAD up by 0.77% over the week to 1.3134 at the close while AUDUSD fell by 1.2% to 0.6812. NZDUSD also tracked the losses, down 0.5% to 0.6103.


  • Equity markets saw another bad week last week with major indices the world over closing down compared to the previous Friday. One exception was in India, but even there the gains recorded by the Nifty and the Sensex were just 0.1%.
  • Germany’s DAX also ended up on the week, by 0.6%, but the CAC (-1.7%) and the FTSE 100 (-2.7%) both ended down. All European equity markets received a boost on Friday with strong gains seemingly on the back of expectations that the FOMC will not be as aggressive following the jobs data released on Friday, but with a worsening energy outlook throughout the region the risks remain to the fore.
  • In the US, stocks initially gained following the jobs data, but lost ground through the rest of day to close down. Over the week, the NASDAQ was the weakest as it dropped -4.2%, followed by the S&P 500 (-3.3% w/w) and the Dow Jones (3.0%).
  • Dubai road toll operator Salik is set to be the latest major listing of a government entity in the emirate, with a 20% stake set to be sold and the listing expected for September 29.


  • Oil prices slumped last week, down 7.9% in Brent markets to USD 93.02/b while WTI fell 6.6% to USD 86.87/b. Fears that demand will be sharply curtailed because of a recession are the near-term factor weighing on the market. OPEC+ meets at the start of the week to set production policy though they may choose to keep output targets unchanged for October onward.
  • The G-7 agreed to cap the price of Russian oil by only allowing insurance or shipping if deals for Russian oil come in below the cap. Neither China or India have signed up to support a price cap, still offering scope for Russia to export its crude oil elsewhere.

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Written By

Daniel Richards Senior Economist

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