Markets are in a flighty, nervy and choppy this week – recession concerns are rising after some soft data and ahead of the key jobs report today. Wall Street is down 2-3 per cent this week and the European bourses are also down similarly; FTSE 100 dropped 1.6 per cent, Dax 1.8 per cent, and Cac 2.6 per cent. All three are in the red this morning too, London and Frankfurt around 0.5 per cent and Paris faring slightly better. US futures are also down. Chinese stocks hit a seven-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 Federal Reserve’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 nonfarm payrolls today, which is expected to hit 161,000 after 114,000 in July, while the unemployment rate is expected to tick down to 4.2 per cent from 4.3 per cent. The average hourly earnings is expected at 3.7 per cent versus 3.6 per cent prior. The focus will likely fall on the unemployment rate after the recent triggering of the Sahm Rule – when the unemployment increases half a percentage point from the previous 12-month low, a reliable recession indicator. Soft payrolls should see stocks sell off and bonds rally, and yen carry unwind worsen.
Markets now see a 43 per cent chance of a 0.5 percentage point cut at the upcoming Fed meeting…now just waiting on the BLS data at 13:30 BST.
Crude 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. The planned hike is now being pushed back to December from October.
By Neil Wilson, chief market analyst at Finalto