07 August 2023
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US labour market may be cooling

By Khatija Haque

US non-farm payrolls increased by a smaller-than-expected 187k jobs in July, the first “miss” this year. May and June employment data were also revised lower by a combined 49k, providing further evidence that the labour market may be cooling, despite the drop in the unemployment rate to 3.5% in July from 3.6% in June. However, average hourly earnings increased by 0.4% m/m in July, with annual earnings growth steady at a still-elevated 4.4% y/y.

July inflation data is due for the US on Thursday this week and the median forecast is for a slight rise in headline CPI to 3.3% y/y in July from 3.0% in June, on higher fuel prices, while core CPI is expected to remain unchanged at 4.8% y/y. Over the weekend, Fed Governor Michelle Bowman said that further rate hikes “will likely be needed to get inflation on a path down to the FOMC’s 2% target”. Atlanta Fed President Bostic and Chicago Fed President Goolsbee both indicated that they expected gradual disinflation and an orderly slowdown in the economy.

German factory orders jumped 7.0% m/m in June, well above expectations for a -2.0% contraction. On an annual basis, factory orders rose 3.0% y/y. The data indicates an improvement in industrial demand, although this was likely due to a sharp rise in Airbus aircraft orders in June.

The Qatar Financial Centre PMI rose to 54.0 in July from 53.8 in June, with business activity rising at a faster pace than in June. New order growth was solid, but slightly slower than in June, and employment in the private sector ticked higher.

Today’s Economic Data and Events

10:00 Germany Industrial production (Jun) forecast -0.5% m/m

Fixed Income

  • US Treasuries rallied at the end of the week as a miss on the headline non-farm payrolls number could prompt some tempering of expectations for how long the Fed will keep rates at restrictive levels. Yields on the 2yr UST ended the day at 4.7641%, down about 12bps while the 10yr yield fell 14bps to 4.0338%. While there was some unwinding of the curve steepening at the end of the week, the 2s10s curve ended the week at -74bps in inversion, compared with about -93bps a week earlier. Inflation data will set the tone for USTs this week.
  • Bond markets in Europe also closed on a stronger footing with bund yields down 4bps to 2.556% while the 10yr gilt yield dropped about 9bps to 4.372%. Emerging market Eurobonds had a strong end to the week with 10yr Turkey USD yields down 11bps to 8.126% while local currency bonds in South Africa, Turkey and India all pulled higher. CDS prices in Egypt pulled in by about 83bps while Turkey 5yr CDS also dropped.
  • Among major central banks this week, the RBI will set policy on August 10 with market expectations for a hold at 4.5%.


  • The miss on the headline July US non-farm payrolls helped to lift most currencies against the dollar at the end of the week. EURUSD jumped to an intraday high of 1.104 before moderating somewhat to record a gain of 0.5% on the day and close at 1.1006. GBPUSD had a rise of 0.3% to 1.2749 while USDJPY continued to drop, its third day in a row, to 141.76.
  • Commodity currencies also received a boost at the end of the week with AUDUSD adding 0.3% to 0.6570 while USDCAD missed out on the gains for the loonie, rising by 0.2% to 133.79.


  • US equity markets closed the week on a softer footing with the S&P 500 down 0.5% on Friday while the Dow Jones fell 0.4% and the NASDAQ dropped the same amount. European equities were uniformly stronger with the FTSE up 0.5% and the Stoxx European index up 0.3%.
  • Equity markets in the UAE had a mixed session at the end of the week with the DFM up a strong 0.8% while the ADX closed near unchanged with a negative bias.


  • Oil prices extended their gains last week with Brent rising 1.3% on Friday to settle at USD 86.24/b and WTI up 1.6% to USD 82.82/b, not far off its year-to-date high of USD 83.26/b recorded in April.
  • The OPEC+ monitoring committed advised that no change in production strategy was required while Russia’s deputy prime minister, Alexander Novak, said oil markets were “quite stable” with prices at an “acceptable level.”


Written By

Khatija Haque Head of Research & Chief Economist

Edward Bell Head of Market Economics

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