The US economy added 60k fewer jobs than expected in July while unemployment climbed from 4.1% to 4.3%, capping off a dramatic week for currency markets.
The US dollar lost over a cent to the pound and the euro in just a few hours. That represented a slight glimmer of hope for sterling after a tough week, although GBP/EUR ended proceedings at its lowest level in almost two months.
Markets reacted to the American data with an almost complete about face. Having just weeks ago expected the Federal Reserve to cut interest rates once or twice this year, traders are now pricing in as many as four or five quarter point (0.25%) cuts before the end of 2024.
It was a stark departure from what had happened just days earlier. Emboldened by cooling prices, the Bank of England voted by a slender margin to cut borrowing costs from 5.25% to 5%. Good news for homeowners but not so for the pound, which slipped against its rivals as anticipation built.
Was the reaction to US data a little exaggerated? Perhaps, although for context it’s worth bearing in mind that the economy added an average of 215k jobs a month over the past year. Unemployment is also a particularly potent metric and could really ramp up pressure on the Fed, who will soon be decamping for their annual symposium in the foothills of the Wyoming Tetons.
Whether justified or not, the reaction in broader markets was swift and brutal. The jobs report coincided with an unfortunately timed tech meltdown, which came on the back of a series of disappointing results from some of the biggest companies in the world.
The hedge fund Elliot Management said that Nvidia, a company that has catapulted itself to global prominence in the space of a few short years, was ‘in a bubble’ and its price ‘overhyped’. The price of oil also fell as whispers of US weakness soon built into a rumble.
Much of Europe will soon be downing tools for the summer. Typically, this means markets will be a touch more quiet than usual, however last week’s Sturm und Drang means there are many sources of more volatility.
Here’s what to look out for this week…
The week begins with services PMI data for the UK and what will be a highly scrutinised ISM services PMI report from the US.
The Reserve Bank of Australia make their interest rate decision on Tuesday, before German balance of trade figures dominate Wednesday.
US initial jobless claims on Thursday are the highlight of what will hopefully be a more serene Thursday and Friday.
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