We were hoping for a surprise in US payrolls, and we got one. To the downside. August job growth amounted to 235k, well below the 733k economists were predicting. The July figure was boosted to 1053k (+110k) but only compensates marginally for the headline miss. The delta variant brought a fourth wave of uncertainty to employers, in particular to those in leisure and hospitality. Net job growth there was flat this time while the sector was leading the job market recovery over the past few months. Business services (74k) and education & health (+35k) took over. Corona wasn’t the only factor weighing on the number. We’ve seen in earlier data that companies find it ever more difficult to find the right man for the right job in a labour supply pool that is still smaller than before the crisis (the participation rate stabilizes at 61.7%). The employment component in the US manufacturing ISM on Wednesday fell into contraction territory for this exact reason. We also note that the separate household survey is more optimistic. According to that publication, employment grew a stronger 509k in August. And let’s not forget the positive elements in today’s payrolls report. The unemployment rate fell further to a post-pandemic low of 5.2% (coming from 5.4%). Wages, lastly, grew 0.6% m/m to be up 4.3% y/y. To be clear: that’s a lot. Historically, wage growth was something in the area of 0.2-0.4%. If this lasts, inflation will soon be driven by more than just the temporary elements the Fed is currently using as a defense.
Markets are reacting interestingly. US bond yields advance 4-5 bps at the long end of the curve. This suggests investors do not assume the Fed will delay tapering much longer. At the Jackson Hole Symposium, Powell wanted to see more progress on the labour market first before slowing down bond purchases. Even if it is just 235k, there has been made such progress in August. Probably the sharp monthly increase in wages also helps to keep the “taper will start soon” (let’s say … September?) debate alive. Markets draw no firm conclusions on what this means for the Fed policy rate though. The short end of the US curve remains unchanged. Despite more (relative) interest rate support, the dollar declines. EUR/USD ventures further north in the high 1.18 area, with 1.1909 an obvious resistance level on the charts (end July top). It would be a nice technical landmark in the run-up to the ECB policy meeting September 9 though. Are currency markets already looking past the Fed and assuming that the ECB will soon follow? This week’s rise in the euro and European yields (German 10y close to -0.36/-0.35% resistance, European 10y swap flirts with 0%) at least suggests something’s about to happen.
Prices in Turkey continued to rise faster than expected in August. CPI inflation rose 1.12% M/M to be up 19.25% Y/Y (was 18.95% in July), driven by food prices (29.0% Y/Y). Core CPI slowed slightly from 17.22% to 16.76%. However, the rise in producer prices still accelerated further to 2.77% M/M and 45.52% Y/Y. The August rise in the headline inflation now surpasses the centrale bank’s policy rate of 19.00%. This could cause a problem for the CBTR’s communication as Governor Kavcioglu repeatedly indicated that it intends to keep a positive real policy rate. Still it won’t be evident to raise its policy rate further as the government doesn’t want monetary policy to slow growth. The next policy decision is scheduled on September 23. EUR/TRY currently trades only slightly higher near 9.86.
Statistics Norway upwardly revised its growth outlook for the Norwegian economy and expects a rate hike at the September policy meeting. SSB sees non-oil GDP growth at 3.6% this year (from 3.1%). Next year’s growth was slightly downwardly revised to a still solid 3.8% (from 4.1%). However, non-oil growth for 2023 (2.4%) and 2024 (2.3%) was also revised higher. Statistics Norway sees the policy rate at 1.75 in 2024. A separated rapport published today showed that Norway’s registered unemployment declined sharply from 3.1% to 2.7%, supporting for the case for a rate hike in the near future. Still, EUR/NOK today trades little changed near at 10.26.