US non-farm payroll employment grew strongly by 528k in July, well above expectation of 250k. That’s also much higher than the average gain of 388k over the prior 4 months. Total non-farm employment has also reached its pre-pandemic level.
Unemployment rate dropped from 3.6% to 3.5%, better than expectation of 3.6%. Participation rate dropped -0.1% to 62.1%.
Average hourly earnings rose 0.5% mom in July, above expectation of 0.3% mom.
BoE Chief Economist Huw Pill told Bloomberg Television, the BoE is not “behind the curve” on tightening.
But he added that investors should not assume there will be another 50bps rate hike in September. “Given the uncertainties we face, I think we need flexibility either to go further, or to stay where we are, and the pace at which we go further to be varied according to circumstances,” he said.
BoE Governor Andrew Bailey said at the Today Programme that the real risks is import inflation from energy and food becomes “embedded”. As firms are not struggling to raise prices, inflation would be comes worse when its embedded.
“The first thing they (businesses) want to talk to me about is that businesses have trouble hiring people, and that is still going on. They’re also saying to us actually they’re not finding it difficult to raise prices at the moment. That can’t go on,” he said.
Bailey also said the interest rates are not going to go back to pre-2008 financial crisis levels. Additionally, “we don’t think that the rolling back of QE and the sale of assets is going to have a big impact on market interest rates”.
US non-farm payroll report is a major focus today. Employment is expected to grow 250k in July. Unemployment rate is forecast to be unchanged at 3.6%. Average hourly earnings would maintain a growth pace of 0.3% mom.
Looking at related data, ISM manufacturing employment ticked up from 47.3 to 49.9. ISM services employment rose from 47..4 to 49.1. Four-week moving average of initial claims rose from 233k to 255k. Overall, these data suggest that there won’t be a blockbuster NFP today. Wage growth would likely be the more market moving part.
Here are some readings on NFP:
Gold’s rally from 1680.83 resumed after brief retreat and breaks through 1786.65 resistance. The development adds to the case that whole decline from 2070.06 has completed after defending 1682.60 key support. Further rally is now in favor as long as 1754.13 minor support holds, for 38.2% retracement of 2070.06 to 1680.83 at 1829.51. The move could be accompanied by another round of near term selloff in Dollar.
Australia AiG Performance of Services rose 2.9 pts to 51.7 in July. Sales jumped 7.4 to 49.3. However, employment dropped -2.9 to 52.4. New orders rose 1.7 to 50.6. Supplier deliveries rose 5.9 to 47.6. Input prices rose 5.3 to 74.3. Selling prices dropped -3.8 to 63.4.
Innes Willox, Chief Executive of Ai Group, said: “We are seeing a ‘two-speed’ services sector emerge as businesses contend with labour shortages and rising interest rates. Business & property and personal services grew dramatically in July, while retail & hospitality and logistics fell dramatically. Chronic labour shortages and a super-charged winter spike in absenteeism are large and growing challenges for labour-intensive service industries. And rising interest rates are dampening consumer sentiment, casting a shadow over consumer-facing sectors.”
Cleveland Fed President Loretta Mester said that “interest rates continue to rise this year and into next year through the first half and maybe by then we can pause and we can start bringing them back down.” She would “pencil in going a bit above four as appropriate”.
As for September meeting, she said, “it’s not unreasonable to think we might have to do a 75 (basis point move) but I can imagine it could be a 50. We’ll just have to look at the data as it comes in.”
US initial jobless claims rose 6k to 260k in the week ending July 30, above expectation of 250k. Four-week moving average of initial claims rose 6k to 255k.
Continuing claims rose 48k to 1416k in the week ending July 23. Four-week moving average of continuing claims rose 11k to 1375k.
In the post meeting press conference, BoE Governor Andrew Bailey said, “overall a faster pace of policy tightening at this meeting will help to bring inflation back to the 2% target sustainably in the medium term,” he said.
“Looking ahead, that does not mean we’re now moving to a predetermined path of raising bank rate by 50 basis points per meeting, or indeed any other number for that matter.”
“Policy is not on a preset path. And what we do this time does not tell you what we’re going to do next time. All options are on the table for our September meeting, and beyond that.”
BoE raises Bank Rate by 50bps to 1.75% by 8-1 vote. Known dove Silvana Tenreyro voted for just 25bps hike. In the accompanying statement, BoE said the MPC will “take the actions necessary to return inflation to the 2% target sustainably in the medium term”. Policy is “not on a pre-set path”. But it will be “particularly alert to indications of more persistent inflationary pressures”, and will “if necessary act forcefully in response.”
In the Monetary Policy Report, CPI is projected to peak at “just over 13%” in Q4, due to Russia restricting the supply of gas to Europe and the risk of further curbs. It’s projected to fall to 5.5% by the end of 2023, and back at 2% in Q3 2024.
GDP growth is expected to slow further from Q2’s 0.5% to 0.2% in Q3, and then decline by nearly -1% in Q4. GDP is also forecast to all further, by -1.50% in 2023, and then -0.25% in 2024.
In ECB’s Consumer Expectations Survey, consumers’ mean perceived inflation over the past 12 months increased markedly from May’s 8.2% to June’s 8.6%. Median inflation perceptions over the previous 12 months rose from 6.6% to 7.2%.
Mean inflation expectations for 12 month ahead rose from 6.3% to 6.6%. Median inflation expectations for 12 months ahead rose from 4.9% to 5.0%.
Mean economic growth expectations for the next 12 months dropped from -1.0% to -1.3%. Median economic growth expectations was unchanged at 0%.
UK PMI Construction dropped from 52.6 to 48.9 in July, below expectation of 52.1. That’s the first contraction reading since January 2021, and worst since May 2020.
Tim Moore, Economics Director at S&P Global Market Intelligence, said:
“July data illustrated that cost of living pressures, higher interest rates and increasing recession risks for the UK economy are taking a toll on construction activity. Total industry output fell for the first time since the start of 2021 as civil engineering joined house building in contraction territory…. Expectations for output growth in the next 12 months are far less exuberant than those seen over the past two years, amid concerns that elevated inflation and higher borrowing costs will constrain demand.”
BoE is expected raise interest rate by 50bps to 1.75% today. That would be the largest rate hike since 1995, while interest rate will then be at the highest level since 2008. The voting will again be a focus and the new economic projections will be scrutinized too. Back in June BoE said inflation is expected to rise to slightly above 11% in October while GDP was weaker than anticipated at the May report. The change in outlook would be reflected in the new economic projections.
Here are some previews on BoE:
GBP/CHF turned into range trading after hitting 1.1525 in late June. There is risk of sell-on-fact in Sterling after BoE which prompt a downside breakout. But anyway, outlook will stay bearish as long as 1.1774 resistance holds, even in case of a rebound. Current down trend is still expected to resume towards 1.1107 low, which is close to 161.8% projection of 1.3070 to 1.2134 from 1.2598 at 1.1084 next, in the medium term.
Minneapolis Fed President Neel Kashkari said yesterday that Fed moved too slowly in 2021 in tackling high inflation. He’s concerned that inflation is pulling wages up and there are risks of going into a wage-driven inflation story. As inflation is spreading, he said that Fed need to act with urgency.
There are some financial markets that are indicating that Fed will cut interest rates in 2024. But Kashkari said, “I don’t want to say it’s impossible, but it seems like that’s a very unlikely scenario right now given what I know about the underlying inflation dynamics.”
“The more likely scenario is we would continue raising (interest rates) and then we would sit there until we have a lot of confidence that inflation is well on its way back down to 2%,” he said.
San Francisco Fed President Mary Daly said, “about 50% of the elevated inflation we’re seeing is from demand factors, 50% from supply factors.”
“50 bps hike would be a reasonable thing to do in September but if we see inflation roaring ahead undauntedly then perhaps 75 bps hike would be more appropriate,” she added.
Also, she does not believe that Fed has reached the threshold for interest rate to be considered restrictive As for tightening, having rate at 3.4% by the end end is a “reasonable place” to get to.
Richmond Fed President Thomas Barkin said in a speech, “we are committed to returning inflation to our 2 percent target and have made clear we will do what it takes.” He expected Fed’s tools to “work over time” and “inflation to come down but not immediately, not suddenly and not predictably”.
“There is a path to getting inflation under control,” he said. “But a recession could happen in the process.”
“We are out of balance today because stimulus-supported excess demand overwhelmed supply constrained by the pandemic and global commodity shocks. Returning to normal means products on shelves, restaurants fully staffed and cars at auto dealers. ”
“Most importantly, moderating demand has a higher purpose squarely in our mandate: containing inflation. If there is any lesson that’s been relearned in the last year, it is that inflation is painful, and everyone hates it.”
US ISM Services PMI rose from 55.3 to 56.7 in July, above expectation of 53.5. Business activity/production rose from 56.1 to 59.9. New orders rose from 55.6 to 59.9. Employment rose from 47.4 to 49.1. Prices dropped from 80.1 to 72.3.
ISM said: “The past relationship between the Services PMI® and the overall economy indicates that the Services PMI for July (56.7 percent) corresponds to a 2.4-percent increase in real gross domestic product (GDP) on an annualized basis.”
Eurozone retail sales dropped -1.2% mom in June versus expectation of 0.1% mom rise. The volume of retail trade decreased by -2.6% mom for non-food products, by -1.1% for automotive fuels mom and by -0.4% mom for food, drinks and tobacco.
EU retail sales dropped -1.3% mom. Among Member States for which data are available, the largest monthly decreases in the total retail trade volume were registered in Denmark (-3.8%), the Netherlands (-3.4%) and Estonia (-2.4%). Increases were observed in Ireland and Malta (both +0.5%), Finland (+0.3%) and Austria (+0.2%).
Eurozone PPI rose 1.1% mom, 35.8% yoy in June, versus expectation of 1.0% mom, 35.7% yoy. For the month, Industrial producer prices increased by 2.7% mom in the energy sector, by 0.7% mom for durable consumer goods and non-durable consumer goods and by 0.4% mom for intermediate goods and for capital goods. Prices in total industry excluding energy increased by 0.4% mom.
EU PPI rose 1.3% mom, 36.1% yoy. The highest monthly increases in industrial producer prices were recorded in Ireland (+13.2%), Lithuania (+5.2%) as well as Latvia and Finland (both +4.0%). Decreases were observed in Greece (-3.2%) and Luxembourg (-2.2%).
UK PMI Services was finalized at 52.6 in July, down from June’s 54.3, worst reading in 17 months. PMI Composite was finalized at 52.1, down from 53.7 in June, the lowest rate of expectation since February 2021.
Tim Moore, Economics Director at S&P Global Market Intelligence: “UK service providers reported their worst month for business activity expansion since the national lockdown in February 2021. Reduced levels of discretionary consumer spending and efforts by businesses to contain expenses due to escalating inflation have combined to squeeze demand across the service economy. The near-term outlook also looks subdued, as new order growth held close to June’s 16-month low and business optimism was the second weakest since May 2020..
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Canada employment dropped -30.6k in Jul, unemployment rate unchanged at 4.9%
Canada employment dropped -30.6k in July, much worse than expectation of 25.0k growth. Services-producing jobs dropped -53k or -0.3% while goods-producing jobs rose 23k or 0.6%.
Unemployment rate was unchanged at 4.9%, below expectation of 5.0%, but matched the historic low reached in June. Total hours worked were down -0.5%. Average hourly wages was up 5.2% yoy.
Full release here.