Market outlook for the week of 3rd-7th August
Monday begins with the release of the manufacturing PMIs for the eurozone, the U.K., and the U.S. The following day, the focus will shift to the U.S. JOLTS job openings report.
Wednesday brings New Zealand’s employment change q/q and unemployment rate, while later in the day, we’ll get the services PMI releases for the eurozone, the U.K., and the U.S.
On Thursday, the U.S. will publish its weekly unemployment claims figures and will follow up Friday with the labor market report, including average hourly earnings m/m, non-farm employment change, and the unemployment rate. Canada will also release its employment change and unemployment rate on Friday.
Several FOMC members are expected to deliver remarks throughout the week.
In the U.S. the consensus for the ISM manufacturing PMI is 54.0 vs. 53.3 prior and for the ISM services PMI it’s 54.5 compared to 54.0 previously. While this would be consistent with the U.S. GDP growth, there is a risk to the downside as the S&P Global’s flash manufacturing PMI registered a small drop in July compared to June and could serve as an early indicator.
In New Zealand, the consensus for employment change q/q is 0.1% vs. 0.2% prior, while the unemployment rate is expected to rise to 5.4% from 5.3%.
This week’s labor market data is expected to reflect softer conditions in the June quarter, with the unemployment rate edging higher. Westpac analysts note that the decline in the unemployment rate recorded in the previous quarter was unexpected and did not fully reflect the broader weakness in the labor market.
Employment has remained relatively resilient despite the economic uncertainty stemming from the Middle East conflict. However, job growth has not been strong enough to keep pace with population growth, suggesting the labor market is gradually softening. As a result, both the unemployment rate and labor force participation could deteriorate further in the coming quarters.
Wage growth is also expected to remain subdued, as spare capacity in the labor market continues to limit upward pressure on wages. In the U.S., the consensus for average hourly earnings m/m is 0.3% compared to 0.3% previously. Non-farm employment change is expected at 88K vs. the prior 57K, while the unemployment rate is forecast to remain unchanged at 4.2%.
Employment growth has been uneven recently, and after showing signs of improvement in the spring, last month’s payrolls disappointed, with only 57K jobs added, less than half of the expectation, and the previous two months revised down by a combined 74K.
Hiring surveys remain subdued and while the market consensus is for an increase of 88K jobs, analysts at ING forecast a more modest gain of 75K and expect the unemployment rate to edge up to 4.3%.
However, a sharp decline in labor force participation with around 700K people leaving the workforce in June, suggests that the unemployment rate may provide only a partial picture of the overall health of the U.S. labor market.
From a monetary policy perspective, expectations for another rate hike have been scaled back noticeably following the latest Fed meeting. Chair Kevin Warsh appears in no rush to deliver the additional rate hike that some FOMC members believe is already warranted.
Scotiabank analysts noted growing concerns about the Fed’s policy credibility after Warsh suggested that the central bank’s inflation target could potentially change once its ongoing policy framework review, led by five task forces, is completed. Such a change could reduce the need for additional rate hikes altogether.
Following the FOMC meeting, investors pushed the U.S. dollar and longer-dated Treasury yields lower, reflecting a more dovish reassessment of the Fed’s expected policy path.
In Canada, the consensus for employment change is 15.0K, compared with the prior 18.2K, while the unemployment rate is expected to remain unchanged at 6.5%. Canada’s labor market is expected to show further signs of stabilization in July.
Slower population and labor force growth, combined with the unemployment rate declining from 6.9% in April to 6.5% and sitting 0.4 percentage points below its level a year earlier, is consistent with a gradual improvement in labor market conditions on a per-worker basis.
Other recent indicators, including job postings, also point to a relatively stable hiring environment. However, the composition of employment will remain important, as June’s increase was driven mainly by part-time positions.
Wage growth also picked up slightly in June after slowing sharply in May, but it is expected to continue easing as labor market slack remains elevated by historical standards, analysts from RBC said.
This article was written by Gina Constantin at investinglive.com.