Sleepily in the markets awaiting the NFP report

Yesterday we got to know the report on American spending. It did not shake the markets. It caused the dollar to gain moderately, Wall Street indices ended the day mixed and yields of US 2Y bonds moved in a narrow range. The readings turned out to be in line with forecasts, therefore the subdued reaction of the market seems to be understandable. Today, the focus shifts back to the labor market. The first Friday of the month is, of course, a fixed point in the program - NFP report.

Increased wage pressure

Yesterday's main macro publication was the July report on Americans' personal income and expenses. It included the Federal Reserve's preferred measure of inflation, the core personal consumption expenditure deflator (PCE core), which is a broader measure of prices than the widely known CPI index. It increased by 0,2 percent. month to month for the second month in a row. On a year-to-year basis, there was an increase from 4,1%. up to 4,2 percent Currently.

The non-housing basic services index, which the Fed is looking at due to the greater impact of labor input costs, came as a negative surprise. Here we have an increase of 0,46 percent. after rising 0,3% in June. Therefore, there is no significant year-on-year slowdown here. With unemployment remaining at a low level of 3,5%, a tight labor market may keep wage pressure at an elevated level and mean that inflation will remain higher for a longer period of time. As such, we may hear some hawkish attitude from some Fed officials.

Americans' personal spending turned out to be strong, rising 0,8 percent. m/m nominally and 0,6 percent m/m in real terms. This gives rise to the belief that CBA in the third quarter it will be solid at 3-3,5%. on an annual basis.

The publications surprised the market

Today we will receive another data package. According to the forecasts, the NFP report is to show another cooling of the labor market, which is to be illustrated by a decrease in employment in the non-agricultural sector to the level of 170. from 187 thousand a month earlier. The unemployment rate is expected to remain unchanged at 3,5%. This week we got to know other reports that indicated that the condition of the labor market is deteriorating.

On Tuesday, the JOLTS survey pointed to weaker demand for labor in the US, and Wednesday's ADP private sector employment report came in below estimates. Each of the publications surprised the market and caused greater market volatility. The dollar weakened and the EUR/USD rate rose above 1,09. It is true that this upward movement at yesterday's session was largely reduced, but if the data surprises negatively, then in my opinion the rate may quickly find itself near the local maximum of 1.0940.

Source: Łukasz Zembik, OANDA TMS Brokers