August a shocker for US job gains

August is never a pretty month for nonfarm payrolls and last month was no different. 156,000 jobs were added, falling well shy of expectations. Adding salt to the wound: July’s numbers were marked lower, the unemployment rate ticked upwards and average weekly earnings grew at their slowest pace since the beginning of 2017. While the need for the Federal Reserve to hike rates is still very present, this morning’s numbers will add to the market’s view that the terminal rate (the rate at which the Fed will deem borrowing costs have returned to ‘normal’ levels) will be significantly lower than it would have been ten, fifteen or twenty years ago.

The dollar’s taken a sharp leg lower, but more damage will need to be done in order to erase the week’s gains for the greenback. In the context of Janet Yellen’s appearance at Jackson Hole a few weeks ago, the poor string of data will have to extend for a few months to significantly change their thinking. Nonetheless, markets see the Fed standing pat on rates well into the close of this year.

Euro looks like a pinball as ECB put the currency in their crosshairs

How much currency appreciation is too much for one of the world’s largest central banks? 16% in nine months is apparently the answer. According to reports, the European Central Bank is said to see a chance that the tapering of their asset purchase plan will not be fully ready until December. Markets saw the inflationary pressure on the continent restricting their room for manoeuvre and forcing the bank’s hands to taper as soon as September – this push back in perceived policy timeline has resulted in the euro being sold off, tipping further below 1.20.

Confidence running high among UK manufacturers – will output follow?

This morning’s manufacturing PMI figures in the UK leapt to the highest levels since April and the second highest reading in over three years – a clear sign that confidence is returning to the industry after years in the doldrums. But, where confidence leads, production doesn’t necessarily follow and it’ll take a few months to see tangible evidence in output and trade statistics before policymakers and economists can turn more upbeat.

This is a cracking start to the 2nd half of the year but the impact on growth will rely on 2 factors; the sustainability of this sentiment boost and how easily it can be translated into higher output. Supply chains are said to be overextended at the moment and lack of key materials – possibly at risk due to higher import costs – may hamper further progression for the sector.

Have a great day and a better weekend.