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Weaker than Expected NFP

Market movers today

The most important data release this week is US CPI for July due on Thursday. The lower than expected June number played a big role in the improving risk sentiment we saw last month and in lowering rate expectations. Also Norway, Denmark and Switzerland, and several euro area countries, will release CPI data this week, but not Sweden.

Today, the two voting FOMC members Michelle Bowman and Raphael Bostic speak at a “Fed Listens” event in Atlanta, Georgia, and US consumer credit data for June is released at 21.00 CET. In the euro area, we get the Sentix investor confidence survey for August. We will also get June manufacturing data for Germany and Norway this morning.

The 60 second overview

US labour market report: Overall, the US labour market report was slightly weaker than expected. The non-farm payrolls came in at 187k (consensus: 200k, prior: 209k), while private payrolls were at 172k (consensus: 180k, prior: 149k). Unemployment rate ticked lower at 3.5%. Average hourly earnings at 0.4% m/m (consensus: 0.3%, prior: 0.4%), while the y/y figure was at 4.4% (consensus: 4.2%, prior: 4.4%). Overall, the first of two job reports before Fed’s September meeting indicates a gradually cooling US labour market, supporting the soft-landing narrative that has gained traction lately. As such, no need for further hikes on the back of this report, but there is still one jobs report and two inflation prints before the September meeting. Fed speakers on the back of the US labour market report are split with Bowman saying that further rate hikes is ‘likely’ while Bostic and Goolsbee argue for more patience.

Central bank meetings this summer: Major central banks have held their policy meetings in the past two weeks. Both Fed, ECB and BoE hiked their policy rates by 25bp, while the BoJ and RBA were unchanged on the policy rate path. A common approach from Fed and ECB is the continued data dependent approach, while ‘patience’ has featured in recent BoE and ECB comments from monetary policy members. BoJ took a small step towards policy normalisation with a greater flexibility to its yield curve control, see links to reviews below.

FI: Global yields dropped sharply on the back of weaker than anticipated US labour market report. 10y Germany fell 8bp to 2.56%, while the 2y point declined 6bp. ECB is priced to hike another 18bp, while the Fed by only 8bp. Most of last week was characterized by a bearish steepening of the yield curves with 2s10s EUR swap almost 15bp higher on Thursday compared to Monday morning. The US labour market report reversed 5bp of that move on Friday afternoon alone.

FX: The USD weakened across the board after the US payrolls data, while simultaneously the SEK and the NOK strengthened also vs the EUR. These responses were fundamental in the sense that they were in line with repricing of relative yields. As such and after a streak of weak sessions, the SEK made a sizeable comeback through the end of last week. Risk sentiment and low liquidity will probably continue to play a part for the Scandies, though.

Danske Bank
Danske Bankhttp://www.danskebank.com/danskeresearch
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