Jobs, jobs and jobs

The soft employment cost index (ECI) released last Friday in the US slightly doused anticipation for Fed liftoff in September. Q2 ECI underwhelmed at 0.2% q/q against expectation of 0.6% growth.

Fed liftoff
Source: Bloomberg

This has complicated the Fed’s inclination towards a rate increase, and caused the markets to reduce the likelihood of a September move. The yield curve steepened as bond traders bought sovereign debt across the board, with more demand seen at the front end. It should be said that the headline number was distorted by bonus payment variability, which might be taken into account by the Fed even if the market does not care.

The market will pay even more attention to the litany of jobs data this week, starting with ADP and initial claims before the more important nonfarm payrolls on Friday. Meanwhile, there will be another 91 companies on the S&P 500 reporting their results this week, with AIG on the tap tonight, while Nikkei will see 82 firms releasing their earnings.

In Asia, markets should start off on mixed sentiment, given a confusing overnight session last Friday. China’s official PMI, released on Saturday, stood at 50.0 (Mkt: 50.1), which reinforced the view that the domestic economy may see further weakness. The final estimate of the Caixin China PMI reading should have little impact on the market, even as there is expectation of a slight upgrade from the advanced reading at 48.2, a 15-month low. I feel that the macro outlook of China – which is probably slowing further – has already been considered by the market. The services PMI figure and trade data for July should provide more colour to the Chinese economic outlook.

In Singapore, the weak sentiment could give investors the conviction to push the Straits Times Index (STI) decisively below 3200. Financials may be affected by perceptions of a delay in Fed liftoff in September. Meanwhile, Noble announced it will release its Q2 results earlier on 10 August, a national holiday in Singapore. The firm said it was not aware of any financial or material issues which might have led to the recent sharp price fall and heightened volatility. It also promised to provide more disclosures on Yancoal’s valuation and inventory sales during the results release. The announcement appeared to be taken positively as Noble share prices jumped over 6% soon after the opening hours.

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