Economic Highlights

UK labour data for July is likely to be welcomed by the BoE as average weekly earnings figure for the 3-months to July slowed to 4%, whilst the figure excluding bonus rose by 5.1%. The latter is the smallest increase since the Summer of 2022 and suggests that the UK labour market is cooling. Additionally, the widely watched pay growth in private sector dropped to 4.9% from the prior print of 5.3%. The unemployment rate fell to 4.1% from the prior print of 4.2%, however the print continues to be distorted by a low respond rate.

As we previewed last Monday, financial markets were going to be dominated in the first week of September by US employment data. The data was mixed at best, leaning towards poor. It kicked off with weaker Job Openings, even if the Quits rate picked up a bit, and ADP’s private payroll data was also disappointing. The weekly jobless claims number, possibly the most timely series, was actually the most robust (“only” 227k new claims), and then came payrolls. The good news was that the unemployment rate ticked down from 4.3% to 4.2%, but payroll growth (142k) undershot expectations (165k) and there was a downward revision to July’s figure from an already weak 114k to 89k. Nobody could realistically argue that the bottom is falling out of the labour market, but the ammunition is there for the Fed to commence its rate cutting cycle at next week’s meeting.

Eurozone aggregate GDP for Q2 2024 was revised down from growth of 0.3% quarter-on-quarter to 0.2%. The biggest drag remains Germany, where consumption and investment were lower than in Q1 and where sentiment surveys remain very weak. Germans are still saving 16% of their income, an amount that has not materially decreased after shooting up during the pandemic as it did elsewhere. Inflation of 2.5% in Germany is not back to target, but on a falling trend that assures assistance from the ECB in the form of another interest rate cut this week.

The Chinese inflation data for August continued to be weak, with headline CPI at 0.6% and PPI at -1.8%. The blip up in headline CPI (from 0.5% in July) was on account of food prices which rose owing to bad weather reducing supply, but the Core CPI came in at 0.3%, the lowest print March 2021. Despite persistent calls from more stimulus, it all feels like “pushing on a string” still as the country wrestles with the bursting of its epic real estate bubble and consumers continue to lack confidence.