Friday Sep 6 2024 12:44
4 min
Markets have been flighty, nervy and choppy this week – recession concerns are rising after some soft data and a key jobs report ahead today. Wall Street is down 2-3% this week and the European bourses are also down similarly; the FTSE 100 is down 1.61%, Germany’s DAX index is down 1.75%, and France’s CAC 40 index is down 2.61%. They are down about a third of a percent this morning, whilst US futures are also down. China stocks hit a 7-month low overnight.
In the latest sign of weakness in the US economy, August private payrolls grew by 99,000 — the smallest increase since 2021 and well below forecasts. Meanwhile the Fed’s latest Beige Book survey of the economy was one of the most downbeat in a long time, particularly around hiring.
Now we look to the BLS nonfarm payrolls report today, which is expected to hit 161,000 after 114k in July, whilst the unemployment rate is expected to tick down to 4.2% from 4.3%. The average hourly earnings is expected at 3.7% vs. 3.6% prior.
The focus will likely fall on the unemployment rate after the recent triggering of the Sahm rule — when unemployment increases half a percentage point from the previous 12-month low, that is treated as a reliable recession indicator. Soft payrolls should see stocks sell off and bonds rally into a bull steepener, while the Japanese yen carry trade unwind should worsen.
Markets now see a 43% chance of a 50-basis-point cut at the upcoming Federal Reserve meeting — markets are now just waiting on the BLS data at 13:30 BST.
USDJPY – the yen unwind continues.
Crude oil didn’t manage to catch any real positive bid despite some ostensibly bullish rumours that OPEC will delay a planned increase in output of 180,000 barrels per day (bpd). The planned hike is now seen being pushed back to December from October.
SPX – broken down at the 50-day SMA after relentless selling. All these volatility shocks are shaking the basis of the year’s rally.
The FTSE 100 index is still within the range since April but the 50-day SMA is threatened with a bearish MACD.
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