Macro Pulse - September 4, 2023

KEY MACRO HIGHLIGHTS:

US unemployment rate spikes but labor market remains resilient:

U.S. nonfarm payrolls increased by 187k jobs in August, beating market estimates (Bloomberg: 170k), after rising by 157k in July. Job growth averaged 150,000 per month over the past three months, sharply down from 238,000 in the three months through May, but remains well above the roughly 100,000 jobs per month needed to keep up with the increase in the working-age population. That pushed the unemployment rate to 3.8%, the highest level since February 2022 but below Fed's latest median estimate of 4.1%, from 3.5% in July.

Fed official says job market is still strong despite higher unemployment:

Federal Reserve Bank of Cleveland President, Loretta Mester, said that the job market is still strong amid signs of a cooling labour market. She noted that job growth has slowed, but the 3.8% jobless rate is still low. She adds that US inflation is still too high, but acknowledged the progress of lowering price pressures. Mester said the main Fed debate is how restrictive rates needs to become and for how long, and that the Fed must balance risks when setting rate policy.

Read the article here:

Canada's economy shrinks: ?

Canada's economy unexpectedly contracted in the second quarter at an annualized rate of 0.2%, far lower than the Bank of Canada's forecast for a 1.5% annualized GDP growth. The quarterly slowdown was largely due to declines in housing investment and smaller inventory accumulation as well as slower international exports and household spending. This will probably allow the central bank to hold rates amid a possible recession.

U.S. manufacturing sector stabilizing at weaker levels in August: ?

U.S. ISM manufacturing PMI contracted for a 10th straight month to 47.6 in August, but the pace of decline continued to slow, from 46.4 in July, suggesting that the sector could be stabilizing at lower levels. Since last November, the PMI has been stuck below the 50 threshold, which indicates contraction in manufacturing, the longest such stretch since the 2007-2009 Great Recession.

India manufacturing activity hits three-month high:?

India’s manufacturing PMI jumped to 58.6 in August, the highest since May and confounding a market expectation for a drop to 57.5, from 57.7 in July. This marked a sustained expansion, with 26 months above the 50-mark separating growth from contraction, the longest stretch since March 2020 when pandemic-induced lockdowns were imposed.

Indian automakers witness rise in August sales ahead of festive season: ?

Top Indian automakers posted an increase in passenger and commercial vehicle sales for August, as optimistic dealers loaded up vehicles ahead of the festive season. In the passenger vehicles (PV) category, sales for?Maruti Suzuki?and?Mahindra and Mahindra?grew 16.4% YoY and 25% YoY, respectively.?Tata Motors, however, posted a 3.5% decline in PV sales.

Key indicators/ Events to monitor:

US and Canadian markets will be closed on today as both countries celebrate Labor Day. There are two monetary policy decisions among developed economies this week: Reserve Bank of Australia on 5th September, and the Bank of Canada on 6th September, where both are expected to keep their respective policy rates on pause. Ahead of the Blackout period, which will begin on 9th September, the Fed will release its latest Beige Book report while the market attention will stay on various senior Fed officials speaking this week, including FOMC voter New York Fed President Williams. Data spotlight from the US this week will be on ISM services survey (6 Sep) while in Europe, the focus will be German industrial production (7 Sep) and Japan’s focus will be on household spending (5 Sep). On the international front, the G20 Leaders’ Summit will be held in Delhi, India from 9 to 10 Sep.

Equities

Domestic Equity

Indian equity indices?advanced on Friday and closed higher for the week, snapping a five-week losing streak, after data showed the economy grew at its quickest pace in a year in the first quarter, which could boost foreign investor inflows. The Nifty 50?index rose 0.94% to end at 19,435.30, while the S&P BSE Sensex?settled 0.86% higher at 65,387.16. The biggest gainers of the session on the?Nifty 50?were?NTPC, ONGC and?JSW Steel, while the biggest laggards included?Cipla, HDFC Life Insurance Company and Dr. Reddy’s Laboratories. The?India VIX, which measures the implied volatility of Nifty 50 options, was down 5.78% to 11.36.

Global Equity

Global market closed broadly higher. Stocks in US ended in green, rising by 0.2%, after the latest jobs report solidified expectations of a pause by Fed in its Sep’23 meeting. Asian equity markets chalked up its second weekly gain, with the MSCI Asia ex-Japan index rising 2% for the week, extending the 0.5% gain in the prior week. Shanghai Comp rose by 0.4% as China stepped up support for its economy.

Currencies

Barring INR, other global currencies ended weaker against the dollar with the DXY rising by 0.6% after a mixed jobs report in the US. EUR fell by 0.6% as Germany’s manufacturing PMI continued to languish in the contractionary zone. INR appreciated by 0.1% supported by positive macro data (Q1FY24 GDP and manufacturing PMI).

Bonds

Barring Japan and India, global yields closed higher. Germany’s 10Y yield rose the most by 8bps tracking ECB Official’s comments. US and UK’s 10Y yield rose by 7bps each. In the US, labour market gave conflicting signals. Even Cleveland Fed President spoke of a data dependent approach on rates. India’s 10Y yield closed flat.

Commodities

Brent crude price rose by 1.9% on Friday to settle at USD 88.6 pb, extending gains from the previous session, amidst considerable drawdown in US inventories and stimulus measures in China. Gold prices remained stable, while copper prices rose by 0.9% to 8,479 on account of increased expectations of a pause in the global rate tightening campaign.

Source: PL Research, CEIC, CMIE Economic Outlook, Refinitiv, Bloomberg, Investing.com.