Markets are bracing for a softer US monthly jobs report today. The Dow, S&P 500, and Nasdaq Composite Index fell by 1.2%, 1.4%, and 2.3%, respectively. The US Treasury 10Y yield eased 5.4 bps to 3.98%, its first daily close below 4% since February 1. Consensus expects US nonfarm payrolls to drop below 200k to 175k in July from 206k in June, mirroring the decline in ADP employment to 122k from 155k. In the ISM manufacturing survey, the employment index fell to 43.4 in July, its worst level since June 2020. Initial jobless claims increased to 249k for the week ending July 27, its highest level since August 2023. With the seasonally adjusted continuing claims at a 2.5-year high of 1544k for the week ending July 20, we cannot rule out an increase in the unemployment rate from the 4.1% level in June. Consensus sees average hourly earnings extending its decline below 4% to 3.7% YoY in July from 3.9% in June.
Speaking after the US labour report today, Fed Presidents Austan Goolsbee (Chicago) and Thomas Barkin (Richmond) should join Fed Chair Jerome Powell’s post-FOMC narrative for a possible interest rate cut in September. With the futures market pricing in more than a 100% probability for rate cuts at the remaining three FOMC meetings this year, the US Treasury 2Y yield eased another 10.9 bps to 4.15%, within striking distance of this year’s low of 4.14% on January 12.
However, the Fed’s rate cut expectation did not push the DXY Index below the 104 level. The DXY has been consolidating between 103.60 and 104.80 after its decline below 105 due to the softer US CPI inflation last month. The unwinding of JPY carry trades was positive for the JPY but negative for the DXY currencies such as GBP, EUR, and CAD. This week, the Bank of Japan was resolute in normalizing monetary policy by hiking rates and reducing its JGB purchases, while the Bank of England joined the European Central Bank, the Bank of Canada, and the Swiss National Bank in lowering interest rates before the Fed. Like the JPY, the CHF reprised its haven role from US stock market indices coming off their record highs. USD/JPY could resume its decline again on a disappointing US jobs report, especially if the critical trendline support at 148.50 fails to hold.
A return to broad-based USD weakness is still possible this month. A higher US employment rate today and softer CPI inflation data in a fortnight’s time should see the Fed talk up the September cut into its Jackson Hole Symposium on 22-24 August. But the DXY still needs to break below 104 first, especially now that the race to the White House is no longer one-sided in favour of Trump.
Quote of the day
”Either you run the day or the day runs you.”
Jim Rohn
2 August in history
Paul Volcker became the 12th Chairman of the US Federal Reserve in 1979. He was credited for stopping high inflation in the 1980s,
The information herein is published by DBS Bank Ltd and/or DBS Bank (Hong Kong) Limited (each and/or collectively, the “Company”). This report is intended for “Accredited Investors” and “Institutional Investors” (defined under the Financial Advisers Act and Securities and Futures Act of Singapore, and their subsidiary legislation), as well as “Professional Investors” (defined under the Securities and Futures Ordinance of Hong Kong) only. It is based on information obtained from sources believed to be reliable, but the Company does not make any representation or warranty, express or implied, as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions expressed are subject to change without notice. This research is prepared for general circulation. Any recommendation contained herein does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. The information herein is published for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate legal or financial advice. The Company, or any of its related companies or any individuals connected with the group accepts no liability for any direct, special, indirect, consequential, incidental damages or any other loss or damages of any kind arising from any use of the information herein (including any error, omission or misstatement herein, negligent or otherwise) or further communication thereof, even if the Company or any other person has been advised of the possibility thereof. The information herein is not to be construed as an offer or a solicitation of an offer to buy or sell any securities, futures, options or other financial instruments or to provide any investment advice or services. The Company and its associates, their directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking and other banking or financial services for these companies. The information herein is not directed to, or intended for distribution to or use by, any person or entity that is a citizen or resident of or located in any locality, state, country, or other jurisdiction (including but not limited to citizens or residents of the United States of America) where such distribution, publication, availability or use would be contrary to law or regulation. The information is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction (including but not limited to the United States of America) where such an offer or solicitation would be contrary to law or regulation.
This report is distributed in Singapore by DBS Bank Ltd (Company Regn. No. 196800306E) which is Exempt Financial Advisers as defined in the Financial Advisers Act and regulated by the Monetary Authority of Singapore. DBS Bank Ltd may distribute reports produced by its respective foreign entities, affiliates or other foreign research houses pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Singapore recipients should contact DBS Bank Ltd at 65-6878-8888 for matters arising from, or in connection with the report.
DBS Bank Ltd., 12 Marina Boulevard, Marina Bay Financial Centre Tower 3, Singapore 018982. Tel: 65-6878-8888. Company Registration No. 196800306E.
DBS Bank Ltd., Hong Kong Branch, a company incorporated in Singapore with limited liability. 18th Floor, The Center, 99 Queen’s Road Central, Central, Hong Kong SAR.
DBS Bank (Hong Kong) Limited, a company incorporated in Hong Kong with limited liability. 13th Floor One Island East, 18 Westlands Road, Quarry Bay, Hong Kong SAR
Virtual currencies are highly speculative digital "virtual commodities", and are not currencies. It is not a financial product approved by the Taiwan Financial Supervisory Commission, and the safeguards of the existing investor protection regime does not apply. The prices of virtual currencies may fluctuate greatly, and the investment risk is high. Before engaging in such transactions, the investor should carefully assess the risks, and seek its own independent advice.