Economy

NEW YORK (Reuters) – U.S. job growth rose slightly more than expected in August and the unemployment rate ticked higher, giving the Federal Reserve enough cushion to stay on its aggressive rate hike path as it tries to tame inflation. Nonfarm payrolls increased by 315,000, the Labor Department’s employment report showed on Friday. July was revised modestly lower to show payrolls rising by 526,000 instead of the previously reported 528,000. Economists polled by Reuters had forecast 300,000 jobs added last month. Employers increased wages at a slower pace last month. Average hourly earnings increased 0.3% in August after gaining 0.5% in July. That kept the year-on-year increase unchanged at 5.2%. MARKET REACTION:STOCKS: After being roughly flat before the report, S&P e-mini futures rose sharply, last up 0.6%BONDS: The yield on 10-year Treasury notes initially jumped before pulling back and was last up 0.2 basis points to 3.267%; The two-year U.S. Treasury yield, was down 4.8 basis points at 3.474%.FOREX: The dollar index weakened and was last down 0.265% at 109.280COMMENTS:BRIAN JACOBSEN, SENIOR INVESTMENT STRATEGIST, ALLSPRING GLOBAL INVESTMENTS, MENOMONEE FALLS, WISCONSIN”Neutral job gains would be close to 100,000 and we’re still printing numbers in excess of that. But things are cooling from very hot levels. It’s directionally a good report with the increase in the labor force participation rate, but it’s a long distance to the destination the Fed is steering towards. Labor numbers are not very timely and not very reliable, so they’re horrible indicators to use to steer an economy, but that’s the way the Fed wants to drive so we just have to buckle up and ride along.”PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK“We added just a bit more jobs than consensus but it was basically inline.” “Hourly wages – that was a good number, better than expected – and the participation rate moved up.” “The bottom line is even though job creation is still solid, the fact is unemployment is moving up and the participation rate is moving up. That’s a sign we that we’re going to see weaker reports ahead. Hourly wages have probably peaked.”“The markets are going to like this data. It’s not too hot nor too cold. This report indicates the Fed is going to raise interest rates by half a percentage point this month, the reason being is that wage inflation seems to have peaked.” “The jobs market is heading for a real cool-off period.”“There were no major surprises. The only real surprise was the unemployment rate.”DAVID PAGE, HEAD OF MACROECONOMIC RESEARCH, AXA INVESTMENT MANAGERS”The basic message is the labor market might be starting to cool and the Fed might not have to move so aggressively. That’s what markets are really worried about, so we are seeing some easing of that.””Some signs of a labor market that’s coming back towards something that’s sustainable, something that the Fed could live with. All of that suggests to us that the Fed will see some easing in the labor market, which is, of course, what they’re trying to achieve in terms of slowing activity, and that probably means they can afford to move by just 50 basis points in September.””We can see the Fed is at the beginning of the end in terms of tightening. Clearly huge developments in the labor market are fundamental here and the market is seemingly reacting to that. The drop in the two year yields, reflects some easing back of the more aggressive thoughts we’ve seen in recent weeks post Jackson Hole.”CHARLIE RIPLEY, SENIOR INVESTMENT STRATEGIST, ALLIANZ INVESTMENT MANAGEMENT, MINNEAPOLIS”Today’s jobs report is a market happy report. The headline number was slightly above estimates. Wages were largely in line. The big thing in this report was the participation rate going up.”    “More people participating in the labor market is a good sign. We’ve seen it pretty depressed since the pandemic.”    “Overall I don’t think it changes the hand for the Fed as it goes into the September meeting, 75 basis points is still on the table.’    “The more important report coming up is CPI and that’s really going to determine how aggressive they need to be going into the end of the year.”     “Stock futures are up and the curve is steepening a bit. It’s not enough to determine what the Fed’s going to do in September. It’s not a strong enough report to signal a more aggressive Fed at this point but it’s not weak enough for the Fed to let off the gas pedal.” (This story has been refiled to note jobless rate rose, not fell) (Compliled by the global Finance & Markets Breaking News team) More

WASHINGTON (Reuters) – U.S. employers hired slightly more workers than expected in August, keeping the Federal Reserve on track to deliver a third 75 basis points interest rate hike this month, though the unemployment rate increased to 3.7%.Nonfarm payrolls increased by 315,000 jobs last month, the Labor Department said in its closely watched employment report on Friday. Data for July was revised slightly down to show payrolls surging 526,000 instead of 528,000 as previously reported. That marked the 20th straight month of job growth.Economists polled by Reuters had forecast payrolls increasing 300,000. Estimates ranged from as low as 75,000 to as high as 450,000. The unemployment rate increased to 3.7% from a a pre-pandemic low of 3.5% in July.The employment report came a week after Fed Chair Jerome Powell warned Americans of a painful period of slow economic growth and possibly rising unemployment as the U.S. central bank aggressively tightens monetary policy to quell inflation. Solid job growth last month was further evidence that the economy continues to expand even as gross domestic product contracted in the first half of the year and was another sign the Fed still needs to cool the labor market despite the front loading of rate hikes.The Fed has twice raised its policy rate by three-quarters of a percentage point in June and July. Since March, it has lifted that rate from near zero to its current range of 2.25% to 2.50%. Financial markets are pricing a roughly 70% probability of a 75 basis points increase at the Fed’s Sept. 20-21 policy meeting, according to CME’s FedWatch Tool.August consumer price data due mid-month will also be a major factor in determining the size of the next rate increase. Despite rising recession risks, the labor market continues to chart its own path. There were 11.2 million job openings on the last day of July, with two job openings for every unemployed person. First-time applications for unemployment benefits are running very low by historical standards. Economists attributed the labor market resilience to businesses hoarding workers after experiencing difficulties in the past year as the COVID-19 pandemic forced some people out of the workforce in part because of prolonged illness caused by the disease. With legal immigration slowing, they say fewer workers are likely to become a permanent reality for employers.There is also pent-up demand for workers in service industries like restaurants and airlines, which are among the sectors hardest hit by the pandemic. The labor force participation rate, or the proportion of working-age Americans who have a job or are looking for one remains more than a full percentage point below its pre-pandemic level.Average hourly earnings rose 0.3% in August after increasing 0.5% in July. That kept the annual increase in wages at 5.2% in August. Strong wage gains are keeping the income side of the economic growth ledger expanding, though at a moderate pace, and a recession at bay for now. More

Wall Street stock futures rose on Friday after fresh data showed that the unemployment rate in the world’s largest economy unexpectedly ticked higher last month.Labour market figures released before the New York opening bell showed that US employers added 315,000 new jobs in August, down from 528,000 in July but higher than economists’ forecasts of 300,000. However, the unemployment rate stood at 3.7 per cent — higher than expectations of 3.5 per cent.Futures contracts tracking the broad S&P 500 gauge jumped 0.7 per cent in response, before trimming those gains to trade up 0.2 per cent. Contracts following the Nasdaq 100 — which is stacked with tech shares that are more sensitive to interest rate expectations — also popped initially, later trading up 0.3 per cent.Jobs data have been closely scrutinised in recent months for clues about how aggressively the US Federal Reserve will tighten monetary policy, with evidence of a hotter labour market fuelling expectations of larger and faster interest rate rises. Conversely, indications of cooling jobs activity have helped to reduce projections of how far the Fed will opt to jack up borrowing costs, as it strives to strike a balance between quelling rapid price growth and pushing the US economy even further into a protracted slowdown. European shares extended their gains after the jobs data release across the Atlantic, with the regional Stoxx 600 index adding 1.1 per cent by lunchtime in London — putting the brakes on five straight days of declines.Those moves came at the end of a gloomy week for global equities. Hawkish rhetoric from Federal Reserve chair Jay Powell at the Jackson Hole Economic Symposium last Friday set the tone for higher borrowing costs to come, stoking worries about rate-setters around the world inducing a deep recession in their efforts to curb inflation.The Fed lifted rates by 0.75 percentage points in July for the second time in a row, taking its target range to 2.25 to 2.50 per cent. Its next monetary policy meeting will take place in late September. Concerns about the health of the global economy had been exacerbated on Thursday by the introduction of a new lockdown in the Chinese megacity of Chengdu, as officials stuck to the country’s zero-Covid policy. Weak Chinese manufacturing data, released the same day, rounded out the darkening mood — signalling waning demand and, in turn, a wider slowdown.In government debt markets, the yield on the 10-year US Treasury note added 0.01 percentage points to 3.28 per cent. The policy-sensitive two-year yield lost 0.03 percentage points to 3.49 per cent, having this week touched its highest point in 15 years. Bond yields rise as their prices fall.The dollar slipped 0.2 per cent lower against a basket of six peers, but continued to hover around its highest level in two decades. The greenback has been elevated in recent months by its traditional status as a haven currency, and expectations of higher borrowing costs in the US while economic conditions worsen in the UK and Europe on the back of an escalating energy crisis. More

The pace of US jobs growth slowed in August after an unexpected acceleration the previous month and the unemployment rate ticked up, in an encouraging sign for the Federal Reserve as it seeks to cool down the economy.The world’s largest economy added 315,000 positions last month, just above economists’ forecasts. That compares with the downwardly revised 526,000 jobs created in July, which has helped to anchor the unemployment rate at a multi-decade low.Despite August’s gains, the jobless rate edged up 0.2 percentage points to 3.7 per cent.The data, released by the Bureau of Labor Statistics on Friday, underscored the labour market on the whole remains robust, even as the Fed has embarked on its most hawkish monetary tightening since the early 1980s.Economists have expected the pace of monthly jobs growth to slow, especially as most of the losses caused by the coronavirus pandemic have been recouped. But employers are still grappling with widespread labour shortages, meaning they are having to compete fiercely to retain workers and hire new ones.Data released earlier this week indicate there are still roughly two vacancies per unemployed worker, indicating little softening of the extremely tight labour market.As such, wages nationwide have risen significantly, sparking concerns of a feedback loop whereby companies are forced to charge more for their products and services to cover these expenses, leading workers to demand even higher pay.Average hourly earnings rose again in August, with wages up 0.3 per cent for the month, or 5.2 per cent on an annual basis. Meanwhile, the labour force participation rate, which tracks the share of Americans either employed or actively looking for work, rose only slightly to 62.4 per cent, still below its pre-pandemic level.

For US central bankers, the resilience of the labour market emphasised just how much more monetary tightening will be necessary in order to sufficiently cool the economy down.Confronted by the worst inflation in four decades, the Fed is debating how high to raise interest rates and for how long to keep them at a level that actively restrains economic activity.The August jobs data help to inform whether the Fed will proceed with a third consecutive 0.75 percentage point interest rate increase at its policy meeting later this month, or move to half-point increments. In just four months, the target range of the federal funds rate has jumped from near zero to between 2.25 per cent and 2.50 per cent.Most officials see rates rising to at least 3.5 per cent this year, with additional increases expected next year.In his most hawkish remarks to date, chair Jay Powell pledged last week that the central bank would “keep at it” until it has restored price stability, admitting that the process is likely to involve a sustained period of lower growth, higher unemployment and “some pain” for households and businesses.

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LONDON (Reuters) – Calls for an unprecedented jumbo 75 basis point lift to interest rates from the European Central Bank next week are on a knife’s edge as inflation soars although a very slim majority of economists said it would be tamer, a Reuters poll found.Late to the rate-setting cycle compared to its peers despite rocketing inflation the ECB didn’t start raising borrowing costs until July when it made its first increase in over a decade. Falling behind has put increasing pressure on the euro, now trading below parity to the U.S. dollar. The ECB surprised many in July with a larger than expected 50 basis point lift, the biggest move in over two decades, taking the refinancing rate to 0.50%.But that clearly was just the beginning, with inflation in the euro zone running at more than four times the Bank’s 2% target, reaching a record 9.1% last month.Yet now the ECB faces the prospect of raising rates aggressively just as the economy is almost certainly entering recession, with the probability of one within a year a median 60% compared with 45% in a July poll.Just under half, 30 of 61 economists in the Aug. 29-Sept. 2 poll, were expecting a 75 basis point increase on Thursday while 27 said the Bank would deliver 50 basis points. Only four expected a modest quarter-point hike.Among euro zone market makers, there was a majority for a 75 basis point move, 18 of 26. Indeed, financial markets are now pricing in the jumbo move and over the last few days a slew of economists have changed their view to 75.The United States Federal Reserve has already made a 75 basis point lift and the Bank of Canada jacked up its key rate by 100 basis points in July and will likely add another 75 next week.At the central bank conference in Jackson Hole, Wyoming, and subsequently, ECB policymakers have called for decisive and swift action to combat inflation, making clear the choice at next week’s policy meeting would be between 50 and 75 basis points.”This remains a very close call – the debate is highly complex, but the mix of recent communication paired with the August upward surprise in headline, and especially core inflation, means a bigger move than in July has now become marginally more likely,” noted Ruben Segura-Cayuela, Europe economist at BofA.Over half of respondents, 31 of 53, saw a 50 basis point hike at the October meeting, bringing the refi rate to 1.50%, with three expecting another 75 basis point move. Seventeen said 25 basis points while the rest forecast no hike then.A majority of economists, 32 of 53, expected a 25 basis point move in December, with 13 expecting 50 then and one saying 75.Medians in the poll said the refinancing rate would end the year at 2.00%, compared to 1.25% in July’s poll. When asked about the risks to their forecasts were skewed, an overwhelming 35 of 37 said higher than they currently expect. OUTLOOK DARKENSRecent data have painted a gloomy outlook for the economy as consumers feeling the pinch from a deepening cost of living crisis cut spending and it was expected to flatline this quarter.Next quarter it will contract 0.3% and then by 0.2% in early 2023, meeting the technical definition of recession. In July those forecasts were for growth of 0.2% in both quarters. On an annual basis it will expand 2.9% this year before slowing to a paltry 0.4% in 2023. The probability of a recession within a year rose sharply to a median 60%, rising to 70% in the next two years, which given the usual reluctance to forecast a slump well in advance strongly suggests a recession is already under way. The median forecast showed inflation peaking at 9.0% this quarter and next before gradually declining but wasn’t seen at the ECB’s goal across the forecast horizon through next year. In the July poll the Q3 and Q4 forecasts were for 8.5% and 7.8%.But it could peak at 12.0% later this year, the median reply to an extra question suggested although forecasts ranged as high as 17%.(For other stories from the Reuters global economic poll: More

BENGALURU (Reuters) -Canada’s soaring house prices will decline sharply next year, but still not enough to make them affordable as the Bank of Canada is set to continue raising interest rates and keep them higher for longer, Reuters polls showed.Fuelled by near-zero interest rates, already-elevated prices in one of the world’s hottest housing markets have surged over 50% since the pandemic began.The Aug. 12-30 poll of 14 property analysts showed average Canadian house prices would rise 10.3% this year, slower than the current pace of around 11%.Although prices have declined nearly 6% since the BoC started hiking the overnight rate in March, analysts say it will take years for affordability to return, if ever. Average house prices were expected to slump 7.8% next year, significantly more than the 2.2% fall predicted three months ago. If realized, that would be the biggest decline since at least 2005, when the Canadian Real Estate Association started collecting house price data.Five respondents predicted a double-digit fall, as much as 18.2% next year. House prices in Toronto and Vancouver were forecast to drop 8.5% and 7.3% in 2023 after surging 13.0% and 10.6% this year.”The pandemic may not be over but the pandemic-era housing market boom certainly is. And the bottom is likely many months away still as our central bank has more work to do,” said Robert Hogue, assistant chief economist at RBC.Over three-quarters of economists, 20 of 25, who participated in a separate Aug. 26-Sept. 1 poll said the BoC would raise rates by a still-hefty 75 basis points next week after a full percentage point rise in July, taking it to 3.25%. “The BoC’s outsized 100 basis-point rate hike delivered on July 13 threw ice-cold water on the market – disqualifying some buyers from obtaining a mortgage,” said Hogue.”Our expectation for an additional 100 basis-point rate increase over the next two rate announcements… will no doubt keep chilling things.”What is not cooling much yet is consumer price inflation.Despite easing slightly in July to 7.6% from a near 40-year high of 8.1% in June, BoC Governor Tiff Macklem said it would “remain too high for some time,” implying the central bank, which has already raised rates by 225 basis points this year, still has more to do. The BoC was expected to deliver another 25 basis points in October to 3.50%. All 17 economists answering an additional question said the risks were skewed toward a higher peak overnight rate than they currently expect.Seventeen of 21 said once the BoC reaches its peak, it was more likely to hold rates for an extended period than cutting them relatively quickly.That is likely to keep pressure on economic activity, particularly in the rate-sensitive property sector, where prices have gone far out of reach for many people. When asked to rate average Canadian house prices on a scale of 1 to 10 where 1 was extremely cheap, 5 priced about right and 10 extremely expensive, the median forecast of 13 contributors rated it 8. For Toronto and Vancouver, the rating was 10.A median of seven responses on a separate question showed prices needed to fall nearly 18% to be fairly valued. A few said they need to fall much more.”The fact is home prices have been disconnected from incomes and rents for quite some time,” said John Pasalis, president at Realosophy Realty.”Even if benchmark house prices fall another 30% nationally, this will just put prices back to Feb 2020 levels (pre-COVID) which were not affordable at that time, but buyers will also be faced with higher interest rates compared to 2020.”(For other stories from the Reuters quarterly housing market polls:) More

MOSCOW (Reuters) -Russia’s benchmark MOEX stock index climbed to its highest in more than three months on Friday, as investors bet on other companies following Gazprom (MCX:GAZP)’s lead in recommending dividends, while the rouble hovered near the 60 mark against the dollar.Gas giant Gazprom’s board this week recommended the payment of 51.03 roubles ($0.8456) per ordinary share in dividends on the first half of 2022, sending the company’s shares up around 25% and buoying Russian indexes.”Investors seem to have cheered up and hopes that the dividend idea is alive and that other Russian companies will join with Gazprom are gradually moving the market upwards,” said Alexander Arutyunyan, chief economist at Russ-Invest. By 1207 GMT, the rouble-based MOEX Russian index was 1.1% higher at 2,471.9 points, its strongest mark since May 18. The dollar-denominated RTS index was up 0.8% to 1,290.1 points, at a near two-month high. “Investors may want to cash in ahead of the weekend, though we still believe that the iMOEX remains in a growing trend,” said BCS Global Markets in a note. STEADY ROUBLEThe rouble hovered near 60 to the dollar and euro, continuing the steady trade that has characterised the past several weeks, a marked contrast to months of volatility. The rouble was 0.1% weaker against the dollar at 60.37 and had lost 0.5% to trade at 60.19 versus the euro.Promsvyazbank analysts said the rouble would remain in the 60-61 range against the greenback on Friday.Volatility has subsided since it hit a record low of 121.53 per dollar in Moscow trade in March, soon after Russia sent tens of thousands of troops into Ukraine. It then rallied to its strongest in seven years of 50.01 per dollar in June.So far this year, the rouble has been the world’s best-performing currency, buoyed by emergency capital controls rolled out by the central bank in a bid to halt a mass sell-off. This helped to avoid an economic meltdown that many had predicted. However, the central bank said Russian banks had lost a combined 1.5 trillion roubles ($24.86 billion) in the first six months of 2022, disclosing banking sector earnings on Friday for the first time since February.($1 = 60.3500 roubles) More

(Reuters) – Global equity funds recorded heavy disposals in the week ended Aug. 31, on concerns that major central banks would continue to hike rates, with inflation levels showing no signs of abatement. Investors jettisoned global equity funds worth $21.41 billion, posting their biggest weekly net selling since the week ended June 15, data from Refinitiv Lipper showed. Fund flows: Global equities bonds and money market https://fingfx.thomsonreuters.com/gfx/mkt/byvrjgljyve/Fund%20flows-%20Global%20equities%20bonds%20and%20money%20market.jpg Last week, Federal Reserve Board chair Jerome Powell said the U.S. central bank will raise rates as high as needed, and that people should not expect it to dial back its monetary policy quickly until inflation is fixed. Economic data from the euro zone this week signalled the region’s inflation scaled a record high in August, while another set of numbers from the United States showed that job openings had increased in July.Investors offloaded European and U.S. equity funds worth $12.64 billion and $10.21 billion, respectively, but purchased funds worth net $1.51 billion in Asia. Healthcare and tech sector funds suffered withdrawals of $546 million and $700 million, respectively, although financials recorded $792 million as inflows. Bond funds also recorded outflows, amounting to $8.04 billion in a second straight week of net selling. Fund flows: Global equity sector funds https://fingfx.thomsonreuters.com/gfx/mkt/lbvgnkgnkpq/Fund%20flows-%20Global%20equity%20sector%20funds.jpg High yields and short- and medium-term bond funds faced outflows of $5.44 billion and $2.46 billion, respectively, but government- and inflation-linked funds received inflows of $1.3 billion and $162 million. Global bond fund flows in the week ended Aug 31 https://fingfx.thomsonreuters.com/gfx/mkt/egpbkryynvq/Global%20bond%20fund%20flows%20in%20the%20week%20ended%20Aug%2031.jpg Money market funds were also out of favour, as investors sold about $1.34 billion in their fourth consecutive week of net selling. Data of commodity funds showed precious metal funds recorded outflows of $890 million, the biggest net selling in six weeks, while energy funds posted an outflow of $118 million. An analysis of 24,482 emerging market funds showed equity and bonds faced outflows worth $738 million and $933 million, respectively. Fund flows: EM equities and bonds https://fingfx.thomsonreuters.com/gfx/mkt/lgvdwdkwrpo/Fund%20flows-%20EM%20equities%20and%20bonds.jpg (This story has been refiled to correct the sixth paragraph in which the outflows from healthcare sector are changed to $546 million from $522 million, outflows from tech sector are changed to $700 million from $414 million, and inflows into financial sector funds are changed to $792 million from $989 million; Also corrects the seventh para in which bond outflows are changed to $8.04 billion from $6.46 billion) More