Weekly house view | Labour market concerns
The week in review
A rise in the US unemployment rate and a big downward revision in payrolls spooked markets late last week, sending US Treasury yields sharply lower. The downward revision of a total 258,000 in May and June left the average 3-month payrolls growth at just 35,000, fueling concerns about the health of the world’s largest economy. In another jolt to markets, the US announced tariffs rates of 25% for India, 35% for Canada, 39% for Switzerland and 50% for Brazil. Mexico got 90 more days to negotiate. The tariff announcements and weak jobs data weighed on stocks and the S&P 500i fell by 2.3% (in USD) on the week. The 10-year Treasury yield fell 17 bps to 4.21%. The jobs data came after the Federal Reserve left interest rates unchanged, with Chair Powell raising concerns that staff cuts at the Bureau of Labor Statistics are impacting the quality of economic data, adding that he wants to conduct monetary policy efficiently. Adding to tension in markets, Trump said he would give Russia 10 more days to reach a truce with Ukraine and ordered the repositioning of US nuclear submarines after what he called “provocative” comments from former Russian President Medvedev. Oil rallied as a consequence. OPEC+ agreed at the weekend to increase oil output by 547,000 per day for September – part of its plan to gradually unwind previous cuts. If that materializes, it shouldput a cap on prices.
Quote of the week
"Each new ultimatum is a threat and a step towards war. Not between Russia and Ukraine, but with (Trump's) own country," Medvedev said after the US president shorted his deadline for a peace settlement in Ukraine.
Key data
US GDP grew at an annualised 3.0% in the second quarter, stronger than the consensus estimate for 2.4% but in line with our expectation. Volatility in trade and inventories accounted for the swing from a 0.5% contraction in the first quarter. The US jobless rate rose to 4.2% in July from 4.1% in June. The Eurozone economy unexpectedly grew by 0.1% in the second quarter, despite global trade tensions, a flash estimate showed. In Japan, a two-year government bond auction drew the strongest demand since October as investors were attracted to bond yields that have approached the highest since 2008.
[i] Source: Pictet WM AA&MR, Thomson Reuters. Past performance, S&P 500 Composite (net 12-month return in USD): 2020, 18.4%; 2021, 28.7%; 2022, -18.1%; 2023, 26.3%; 2024, 25%.