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The monthly US jobs data are always closely watched, but interest in Friday’s report is even more intense than usual. At stake, investors believe, is the likely size of the Federal Reserve’s first interest rate cut later this month.
Economists expect 163,000 jobs to have been added to US payrolls in August, according to a poll by Reuters, but individual forecasts range widely.
Last month Fed chair Jay Powell made it clear at the central bank’s annual symposium in Wyoming that he was focused on the risks of a weaker labour market, although he cautioned that the timing and pace of rate cuts still depended on future data.
“Payrolls are going to be a huge number for the markets as well as the Fed,” said Kevin Flanagan, head of fixed income strategy at WisdomTree. “The way that Powell framed things at Jackson Hole has now put payrolls front and centre.”
Investors are still unsure whether there will be a quarter-percentage point, or a half percentage point cut, at the Fed’s mid-September meeting. Futures suggest a quarter-point cut is most likely, but pricing implies a 30 per cent probability it will be deeper, according to the CME’s FedWatch tool.
Friday’s reading also takes on further weighting after July’s report undershot expectations. Then, payrolls rose by 114,000, far below forecasts of 175,000 new jobs, triggering a brutal market sell-off around the world.
Another number that deeply undershoots expectations could once more fan fears the economy is slowing more sharply than thought and would boost market bets on a half-point cut later in the month. Jennifer Hughes
Will the FTSE 100 hit a record high?
Several European equities indices hit record highs in August and investors are expecting London’s FTSE 100 to join the club shortly.
The index of UK blue-chip stocks closed down by a couple of points at 8,376.6 on Friday, but it is just 70 points, or 0.8 per cent, shy of the record high of 8,445.8 set in May.
The benchmark has risen 8.3 per cent this year but languished in the past three months. However, sentiment is beginning to turn in its favour, ushered in by investors’ conviction that July’s general election marks the start of political calm and further signs that inflation is beginning to slow.
“After the recent elections, the UK is now among the countries with lower political uncertainty in Europe while having a similar growth outlook,” said Maximilian Uleer, head of European equity at Deutsche Bank. The bank has the FTSE down as its most favoured European index.
UK markets have narrow exposure to technology stocks, which has lessened the blow of recent volatility following earnings from US chipmaking giant Nvidia that triggered a pullback in Wall Street at the end of August.
The optimism has been boosted by the pound strengthening against the dollar, up 3.1 per cent year-to-date, helping allay fears for overseas investors that money into the market could quickly be eroded by a weak currency, according to Tineke Frikkee, head of UK equity research at Waverton Investment Management.
However, Frikkee cautioned that although the FTSE 100 was proving “more defensive” than US equities, it was still unclear over the pace at which interest rates would come down in the UK and how companies would react to a potential slowdown in major economies. Rafe Uddin
Will Turkey’s inflation rate continue falling?
Turkey’s inflation rate is forecast to have fallen sharply in August, bolstering policymakers’ confidence that a broad economic reform programme is slowing runaway price growth.
Consumer prices are expected to have risen at an annual pace of 53 per cent in August from 62 per cent the previous month, according to a FactSet survey of economists.
Price growth is also expected to have cooled significantly on a month on month basis after accelerating to 3.2 per cent in July as electricity price rises filtered through Turkey’s $1tn economy, economists said ahead of the report from the country’s statistical institute on Tuesday.
Turkey has sharply tightened monetary policy as part of an effort to restore rational economic policymaking, which began after President Recep Tayyip Erdoğan was re-elected in May 2023.
The central bank has increased its main interest rate from 8.5 per cent in June 2023 to 50 per cent in an attempt to cool overheating consumer demand, which had led to severe economic imbalances, including a swelling current account deficit.
The new measures, which have also included tax rises, have shown early signs of success, narrowing the current account deficit and rebuilding central bank reserves that had been severely depleted by the previous unorthodox economic policies. Still, economic officials privately concede that much of the fall in inflation, which registered 75 per cent as recently as May, has been the result of last year’s very high baseline in prices.
The true test will come in the coming months, when investors will get a clearer picture of whether the policies are working. Turkish market participants expect inflation to fall to 43 per cent by year-end, according to a central bank survey. However, consumer expectations remain unanchored, with a separate poll by Istanbul’s Koç University showing households expect inflation of 96 per cent at the end of 2024. Adam Samson