04 September 2023
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US labour market cools in August

By Khatija Haque

Data for August provided further confirmation that the US labour market is softening. Although a larger than forecast 187k new jobs were added last month, the readings for June and July were revised lower by a total -110k, taking the three month average to just under 150k per month. The unemployment rate unexpectedly rose to 3.8% in August from 3.5% in July, although this reflected a big increase in the number of people actively seeking work. Perhaps most relevant for the Fed, average hourly earnings growth slowed to 0.2% m/m from 0.4% m/m in July, the smallest rise since February 2022. While the annual growth in average hourly earnings is still high at 4.3%, the momentum does appear to be slowing.

The August manufacturing PMI and ISM surveys were also still firmly in contraction territory, although to a smaller degree than in July. The S&P Global manufacturing PMI rose to 47.9 last month from 47.0, while the ISM manufacturing index rose to 47.6 from 47.0 in July. Overall, last week’s US data should provide sufficient evidence of moderating inflation pressures to allow the Fed to hold rates steady at the September meeting.

The UAE and New Zealand have started preliminary talks on a comprehensive economic partnership agreement (CEPA) as the UAE continues to work on boosting international trade and investment. The UAE accounted for 2.5% of New Zealand’s total foreign trade last year. 

Saudi Arabia’s Public Investment Fund (PIF) has agreed to buy Sabic’s steel manufacturing subsidiary Hadeed in a deal worth SAR 12.5bn (USD 3.3bn), according to Bloomberg. Hadeed will also acquire AlRajhi Steel, giving PIF ownership of a “national champion in Saudi Arabia’s steel sector” according to PIF’s deputy governor Yazeed AlHumied.

This week’s key economic data and events

  • 6 Sep: Bank of Canada rate decision
  • 7 Sep: Eurozone Q2 GDP (final)
  • 8 Sep: Japan Q2 GDP (final)

Fixed Income

  • US Treasuries initially rallied on the August non-farm payrolls print as the slowing labour market limited the chances of any further rate hikes from the Federal Reserve—our baseline scenario. However, the gains faded over the remainder of the session with the 2yr UST yield enduring around a 10bps round trip from a bit more than 4.85% ahead of the NFP to just shy of 4.75% before pulling higher. For the day, the 2yr UST yield rose a bit more than 1bps to 4.8785% while the 10yr managed a clearer move, with the 10yr yield up 7bps at 4.1788%.
  • Markets have shaved expectations of an additional rate hike from the Fed to less than 33% by the November meeting. Expectations for the first cut in policy are set for March, although not fully priced in.
  • European bonds matched the behaviour of Treasuries on Friday though most ended more clearly weaker. Yield on the 10yr bund added 9bps to 2.544% while the 10yr gilt yield added 7bps to 4.422%.
  • Emerging market bonds were weaker across the board with Turkey 10yr yields adding 12bps to 20.65% and South African 10yrs up 2bps to 11.713%. GCC USD-denominated bonds closed weaker on Friday with a broad index edging slightly lower.
  • Central bank decisions this week include Israel (Sept 4), Australia (Sept 5), Canada (Sept 6) and Malaysia.


  • The dollar ended the week on a strong footing against most peer currencies as the pull up in UST yields helped support the greenback. EURUSD dropped by 0.6% on Friday to settle at 1.078 and down about 0.15% on the week. GBPUSD dropped 0.7% on Friday to 1.259, closing near flat on the week while USDJPY added 0.5% on Friday to settle at 146.22.
  • Commodity currencies closed weaker with USDCAD up 0.6% on Friday at 1.3592 while AUDUSD fell 0.4% to 0.6456 and NZDUSD fell 0.4% to 0.5949.
  • EM currencies also closed weaker with USDTRY adding about 0.1% to 26.7286 along with other CEE markets. ZAR managed to pull slightly stronger, up about 0.2% to 18.8419 while EGP appreciated modestly to 30.8953 (the 12-month NEDF rose 0.6% to 41.025).


  • US equities pulled higher at the end of the week with the Dow rising by 0.3% and the S&P 500 up 0.2%. The prospect that the Fed will now be able to keep rates unchanged may help to spur some risk appetite. Elsewhere European bonds closed mixed at the end of last week with the Euro Stoxx 50 down 0.3% and the FTSE 100 up 0.3%.
  • Asian markets have opened stronger in early trade today with the Nikkei up 0.5% and the Hang Seng bouncing a strong 2.6%.
  • Local markets closed mixed at the end of last week with the DFM up by 0.2% on Friday while the ADX closed lower by 0.3%.


  • Oil prices pulled stronger at the end of the week with Brent futures up 2% to USD 88.55/b and WTI rising by 2.3% to USD 85.55/b. Both contracts managed to more than recover the prior week’s losses with Brent up almost 5% last week and WTI adding more than 7%. Front month spreads widened out with the Brent market at USD 0.75/b in backwardation, compared with USD 0.53/b a week earlier while the same spread in WTI settled at USD 0.8/b, up from USD 0.34/b a week earlier.
  • Industrial metals had a strong end to the week with copper up 0.9% at USD 8,500/tonne on the LME while some emerging positivity around China’s economy helped to lift iron ore futures up 6.2% to USD 116.27/tonne.

Written By

Khatija Haque Head of Research & Chief Economist

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