Friday’s US employment situation report is key at 12:30 pm GMT. This follows the broad downside surprises across key measures for July (2024), triggering declines in US Treasury yields and the US dollar (USD). According to the Reuters poll, the median estimate for the August non-farm payrolls report indicates 163,000 jobs were added to the US economy, up from 114,000 in July.
The unemployment rate for August is expected to ease to +4.2% from +4.3% in July, while average hourly earnings wage growth is estimated to modestly increase in August on both month-on-month and year-on-year measures to +0.3% (from +0.2%) and +3.7% (from +3.6%).
In the event of further softness in data this week, this could swing the pendulum more in favour of a bulky 50 basis point rate cut. This may also further weigh on US Treasury yields and the USD. However, the issue with US equity markets is that bad news may not necessarily be good news based on recession fears, meaning a soft number could send stocks lower.
Before the headline employment numbers, US JOLTs Job Openings will be released on Wednesday, and the ADP non-farm employment change and weekly unemployment claims will be released on Thursday. We also get the Institute for Supply Management (ISM) data for August for manufacturing (Tuesday) and services (Thursday).
The BoC claims a portion of the limelight on Wednesday this week, scheduled to deliver an update at 1:45 pm GMT. As of writing, -29 basis points of easing is priced in for this announcement, meaning investors are anticipating another 25 basis point rate cut, bringing the Overnight Policy Rate to 4.25% and marking a third successive rate cut for the central bank. For the year, investors expect another two rate cuts following this, with a 25 basis point reduction at October and November’s meetings. And the economic landscape in Canada appears to justify rate cuts.
The year-on-year CPI inflation (Consumer Price Index) eased to its lowest levels since early 2021 at +2.5% in July (2024), down from +2.7% in June, remaining within the BoC’s inflation band of 1-3%. The BoC’s preferred measures of inflation, ‘CPI Median’ and ‘CPI Trim’, also pulled back to +2.4% and +2.7%, respectively, bringing the average of the two measures to +2.55%, down from +2.75%. At the July meeting, BoC Governor Tiff Macklem communicated that if further progress on disinflation is observed, it is ‘reasonable to expect further cuts in the policy interest rate’.…Read more by Aaron Hill
