Market Report.
😊 We’re starting Friday with unusual optimism, which is good, but that’s precisely what can bring bitter surprises if something doesn’t go according to plan today.
📉 The initial employment data published yesterday indicate a weakening labour market. The ADP report shows lower job creation than expected, with 54,000 positions compared to the estimated 73,000. There is a clear trend of declines in this data over the past few years, which suggests that the labour market is indeed weakening. Of the nine reports released this year, only three have been better than expected.
📊 Initial jobless claims have also risen above expectations to 237,000, compared to 230,000, and above the previous period. Again, this indicates weakness in the labour market. Labour costs decreased to 1%, compared to the expected 1.2% and the 1.6% from the previous period, raising concerns of further inflation at least for these reasons, and providing a green light for new rate cuts.
💡 Given these analysed data, in anticipation of today’s employment report, we can bet that the report will favour a rate cut. This is why the market has celebrated in recent hours; with a certain recovery, the S&P 500 has returned to historical highs, and the Nasdaq has regained some of the ground lost since last week.
⚠️ However, precisely because everything points in this direction, the danger would be an employment report that shows strength. The unemployment rate is expected to rise to 4.3% from 4.2%, so caution is warranted if this is not the case. Non-farm payrolls (NFP) are expected to come in at 75,000, improving relatively from the 73,000 of the previous period and showing a clear decline since April, with the exception of the July publication, which came in above expectations.
📉 Not only has the S&P 500 celebrated the weakening labour market. Bond market volatility has subsided following the release of U.S. jobs data. This data supports the expectation of a more accommodative Federal Reserve policy. Consequently, Japanese 30-year government bond yields have retreated from recent highs, and similarly dated U.S. Treasury yields have fallen to three-week lows. Shorter-term U.S. Treasury yields (two- and 10-year) are at four-month troughs. British 30-year gilt yields have returned to pre-spike levels, and German and French yields have also declined from multi-year peaks.
🇯🇵 Japanese real wages turned positive for the first time in seven months in July, rising 0.5% year-over-year. This was driven by hefty summertime bonuses, which jumped 7.9%. However, elevated inflation, with the consumer price index rising 3.6% in July, is putting pressure on consumption and complicating the Bank of Japan’s decision on when to raise interest rates. Household spending in July rose 1.4% year-over-year, short of the 2.3% forecast.
🛢️ Oil prices extended their decline into a third session on Friday, heading for a weekly loss for the first time in three weeks. This is due to growing supply expectations and a surprise build in U.S. crude stocks, which adds to demand concerns. Brent crude futures fell 0.15% to $66.89 per barrel, while U.S. West Texas Intermediate crude fell 0.20% to $63.35 per barrel. Crude oil prices remain under pressure amid concerns of rising OPEC+ supply, as the group is expected to consider raising production further in October. Supply risks remain, with President Trump telling European leaders they must stop buying Russian oil, which could disrupt global supplies and push oil prices higher.
⚖️ The Justice Department has opened a criminal investigation into Federal Reserve Governor Lisa Cook, issuing subpoenas as part of an inquiry into whether she submitted fraudulent information on mortgage applications. The investigation comes after two criminal referrals from the Trump-appointed director of the Federal Housing Finance Agency, who has publicly alleged that Cook engaged in mortgage fraud.
🗣️ President Trump has cited these allegations in his bid to fire Cook and gain more control over the Federal Reserve. The Federal Reserve Act allows the President to fire Fed governors “for cause”, which the Trump administration says justified Cook’s dismissal.
🔄 If Trump is successful in replacing Cook with one of his allies, it would give Trump-picked appointees a majority on the Fed’s board.
⚖️ Another similar case: President Trump has asked the Supreme Court to allow him to fire Federal Trade Commission (FTC) commissioner Rebecca Slaughter, after lower courts ordered her reinstatement following her termination. Trump argues he acted lawfully in removing Slaughter, citing recent Supreme Court rulings affirming the president’s authority to remove heads of executive agencies. A federal judge and the U.S. Circuit Court of Appeals in D.C. have ruled that Slaughter’s firing was illegal, as FTC commissioners can only be removed for cause, which was not provided by Trump. Slaughter has returned to work at the FTC after the appeals court decision, stating she intends to serve out her term which ends in 2029.
🌍 Geopolitics:
🇫🇷 Despite the financial difficulties facing France amid a potential risk of default due to its very high debt, a summit was held in Paris yesterday to pledge more resources for the war. Macron informed the press that 26 countries from a coalition of volunteers have committed to deploying troops to Ukraine following the ceasefire. The key question is which countries these are and whether their parliaments have already voted on and authorised the deployment of troops. Otherwise, this would constitute a violation of the democratic and constitutional principles of each country. Unfortunately, we have seen similar cases in recent years.
🇮🇱 According to Israeli Foreign Minister Sa’ar, French President Macron cannot enter Israel as long as his administration keeps up its anti-Israel stance.
📈 Market View.
🎉 The American markets are celebrating the data ahead of the U.S. employment report, which would indicate weakness, thereby facilitating rate cuts by the Fed. The S&P 500 has reached new historical highs, with futures exceeding 6,530 points. The Nasdaq 100 has regained the levels lost during the previous week, with its futures reaching 23,775 points.
📉 The index has retreated to 98.15 points; today’s data could break the sideways range that has persisted since August. The euro-dollar has risen to 1.1670 in anticipation of the employment data. Retail sales in the UK have improved, but the GBP/USD pair shows bearish patterns that, if realised, would provide perfect coverage against unexpected employment data and a strengthening dollar.
📈 The DAX 40 is also rising with optimism, currently surpassing 23,900 points in its futures contracts, on track to recover the levels lost at the beginning of the week. The Eurostoxx 50 has already regained these levels, reaching 5,375 points in its futures contracts.
🌟 All seems well in the equity markets, as the market discounts weak labour conditions in the United States and anticipates a rate cut. Thus, an employment report showing strength in the labour market would be devastating at this moment.
🛢️ Crude oil continues to fall, with Brent reaching $66.65 per barrel, accumulating a loss of over 4% since the beginning of the week. We have explained the causes in the news section.
💰 Gold futures remains around $3,610 per ounce following the records reached on Wednesday.
📉 Lastly, Bitcoin is attempting to recover from the declines of recent weeks, reaching $112,240.
