Markets Plod Along Into August Jobs Report

WHERE WE STAND – I suppose we can put yesterday down as the (relative) calm before the (potential) payrolls storm.

In short, it was rather a dull day for markets, with conviction clearly lacking ahead of the August jobs report, due later on today. Along with that, there were relatively few catalyst to materially move the needle, with news flow pretty light, and the data that we did get – ADP employment, US jobless claims, and the ISM services survey – all close enough to consensus not to bother worrying about them too much.

Once again, perhaps the most notable move on the day came here in the UK, where the benchmark 30-year Gilt fell as much as 5bp on the day, briefly trading as low as 5.55%. This rally, to be clear, is not a reflection of the UK economy suddenly returning to a secure fiscal footing, but instead almost entirely a function of the DMO deciding to shelve a planned 30-year sale that was due to take place on 2nd Dec.

On this, I will commend the DMO, for some pragmatic decision making, in an attempt to modestly alleviate pressure on the long-end of the curve. The last thing that segment of the Gilt market needs right now is additional supply, which also strengthens the case for the BoE to end active Gilt sales sooner rather than later. These measures, however, are little more than temporary sticking plasters, though if they are used to buy the Government time to steady the fiscal ship, via significant spending cuts, they could well bear dividends in the longer-run. My hopes on that front are slim, mind, with risks to Gilts, and the GBP, still tilted firmly to the downside.

On a broader level, as alluded to, markets didn’t appear to do much of particular interest yesterday, with consolidation very much the order of the day, as most major markets did little more than tread water. Some notable upside was seen in the equity complex, and in the belly of the Treasury curve, while the dollar also advanced a touch, though none of these moves are, in truth, really worth writing home about.

With that in mind, and with the macro backdrop little changed, I retain my overall biases to be long of equities, short the long-end of the Treasury curve, short the greenback, and long gold. I can’t imagine any of that changing after today’s NFP print, but let’s see how things shake out.

LOOK AHEAD – It’s the first Friday of the month, which means it’s also ‘Jobs Day’ in the States.

I’d argue, though, that today’s jobs report doesn’t really matter in the grand scheme of things. The Fed will be delivering a 25bp cut at the September meeting. A hot report shan’t dissuade them from doing so, given the broader trend of softening jobs data. A cool report shan’t convince them to plump for a larger rate reduction, given lingering upside inflation risks. Hence, bar some short-term, knee-jerk market noise as the print crosses, I struggle to see the figures being a gamechanger.

Anyway, in the interest of good order, I’ll note that headline payrolls are set to have risen by +75k last month, marginally above the breakeven rate, though revisions to the prior two prints obviously bear watching closely. Meanwhile, pay pressures should remain contained, with average earnings seen rising 0.3% MoM, though unemployment is set to tick higher to 4.3%, from 4.2%. The unrounded prior print, though, at 4.2479%, means that rise probably won’t be as big as it might seem at first glance. On the whole, the report will cause plenty of excitement, and fill plenty of column inches, but I’m rather struggling to get excited about things in all honesty.

Elsewhere, we also get labour market stats from Canada today, along with the much-delayed July UK retail sales report. Neither is likely to be especially market-moving, while the reliability of the latter is still questionable.

Besides all that, there’s the usual warning around the potential for weekend gapping risk on unexpected trade or geopolitical headlines, plus an OPEC+ meeting on Sunday. In better news, the Fed’s pre-meeting ‘blackout’ starts at close of play – I’ll definitely drink to that to see in the weekend!