Forexlive Americas FX news wrap 4 Sep: Concerns about job weakness sends the USD lower

• A mix day for US stocks in up and down session
• Dem nominee Harris capital gains tax plan to go to 28% if you make $1M or more
• Citi says a 50 basis point Fed cut in September is likely
• OPEC+ lifeline falls flat, WTI settles down $1.14
• Beige Book: Economic activity flat to slightly down in most Districts
• Biden prepares to block Nippon Steel acquisition of U.S. Steel – report
• Canada’s Trudeau says he hopes opposition can focus on delivering for Canadians
• Israeli PM Netanyahu sees possibility of reaching a Gaza cease-fire deal
• Atlanta Fed GDPNow growth estimate for Q3 2.1% versus 2.0% prior
• Bitcoin erases the earlier large losses
• European equity close: A second day of selling
• Macklem press conference: There was a strong consensus for a 25 bps cut
• Eyes on the yield curve: US 2s10s dis-inverts
• Fed’s Bostic sees potential for soft landing as labor market loosens gradually
• JOLTs job openings 7.673M vs 8.100M estimate
• US July factory orders +5.0% vs +4.7% expected
• Full statement from the Bank of Canada: Rates lowered by 25 bps to 4.25%
• Bank of Canada interest rate decision: Rates lowered by 25 basis points
• Kickstart the FX trading day w/ a technical look at some of the major currency pairs
• US international trade balance for July $-78.8 billion versus – $-79.0 billion estimate
• Canada July trade balance +0.68B vs +0.80B expected
• Goldman Sachs: Three reasons to buy gold
• The JPY is the strongest and the CAD is the weakest as the NA session begins
• ForexLive European FX news wrap: FX mostly little changed, stocks hold lower; BOC up next

The Bank of Canada cut rates by 25 basis points to 4.25% from 4.5%. That was the odds on favorite but there was some hope for a full 50 bp cut.

On the Global economy, the statement said:

• Global economy grew by approximately 2.5% in Q2.
• U.S. growth stronger than expected, driven by consumption, but labor market slowed.
• Euro-area growth boosted by tourism and services; manufacturing remains weak.
• China faces weak domestic demand impacting growth.
• Global financial conditions eased, bond yields declined; Canadian dollar appreciated modestly.
• Oil prices lower than projected in July.

On the Canadian Economy , the statement said

• Canada’s Q2 growth at 2.1%, led by government spending and business investment; slightly above July forecast.
• Preliminary indicators show soft economic activity in June and July.
• Labor market shows little change in employment; wage growth remains high relative to productivity.

On inflation:

• Headline inflation slowed to 2.5% in July.
• Core inflation measures averaged around 2.5%.
• Shelter price inflation remains high but is starting to slow.

ON the reason for rate cut: Continued easing in broad inflationary pressures and excess supply in the economy.

On the Monetary Policy Outlook: Future decisions will be guided by incoming data and its implications for inflation; commitment to restoring price stability remains strong

At the press conference, Governor Tiff Macklem stated that there was a strong consensus among policymakers for a 25 basis points (bps) rate cut. However, alternative scenarios were discussed, including the possibility of cutting rates at a slower pace or implementing a 50 bps cut if the economy or inflation were to weaken significantly. Macklem emphasized that future decisions would be made on a case-by-case basis rather than following a predetermined path. While inflation remains above the Bank of Canada’s target, they expect some pickup in economic growth, though there are downside risks to the outlook that need to be monitored.

The USDCAD moved lower (higher CAD) despite the cut in rates. The CAD also rose despite later in the day, the withdrawal of coalition support by the New Democrats took away the majority from PM Trudeau and put the Liberals rule in jeopardy. For more CLICK HERE.

The JOLTs job report, showed employment weakness with the job opening falling and with the decline, it brought the ratio of job openings per available worker down to less than 1.1, about half where it was from its peak of more than 2 to 1 in early 2022 The slack in the jobs market is whittling away. On Friday, the US August nonfarm payrolls count will be released with expectations to show an increase of 161,000 and a tick down in the unemployment rate to 4.2% from 4.3% last month.. A weaker number could alarm the Fed. Recall that Fed Chair Powell said that he did not want to see the job market get weaker when he spoke at Jackson Hole.

The Fed’s Beige Book – which the Fed uses to gauge anecdotal evidence from across the Fed districts going into their rate decision meeting later in the month – was released in the US afternoon, and indicated that economic activity across most Districts was flat to slightly down, with only three Districts reporting slight growth and nine reporting flat or declining activity. Employment levels remained steady, though firms have become more selective in hiring due to economic uncertainty, leading to modest wage growth. Consumer spending generally declined, and auto sales showed mixed results. Manufacturing activity continued to contract in most regions, while the housing market and commercial real estate activity were also mixed, with softer home sales reported in several Districts. Looking forward, most contacts expected economic activity to remain stable or see modest improvement, though three Districts anticipated slight declines. The report suggests that the U.S. economy is losing some momentum, with fewer signs of robust growth and a cautious outlook from businesses regarding future expansion and hiring.

The softer data and anecdotal story from the Beige Book has traders more anxious about the US jobs report on Friday. If weak enough, it could push the Fed to cut by 50 basis points

In the US debt market, the yields moved lower with the shorter end down more than the longer end. That took the 2 – 10 year spread close to parity as fears of slower growth/a recession started creeping into the market sentiment.

The 2– 10 year spread is now only -1.1 basis points. Back on August 5 (the day the Nikkei fell by -12.4%), the spread reached positive 1.3 basis points, but it quickly reversed trading to -20 basis points by August 19 before rotating back to the upside. Prior to August 5th, you have to go back to July 2022 to get to a positive yield curve between 2 and 10 year yields.

Despite the decline in rates and fears of a recession, the Atlanta Fed GDPnow growth estimate for Q3 rose to 2.1% from 2.0% prior.

The changing yields today shows:

• 2-year yield 3.762%, -12.6 basis points.
• 5-year yield 3.552%, -10.3 basis points
• 10-year yield 3.757%, -8.7 basis points
• 30-year yield 1.058%, -7.1 basis points

The fall in yields today helped to push the USD lower. The greenback is ending the day as the weakest of the major currencies, while the JPY continued its move to the upside with the USDJPY, trading near the lows for the day and looking to test the lows from last week near 143.67 and 143.39. The USDJPY fell -1.17% on the day and was the biggest moving currency pair of the majors.

In other markets:

• Crude oil settled below the $70 level for the first time since December 2023. The price is trading) $69 or -1.9% on the day
• Gold is trading up $3.65 or 0.15% at $2496.17
• Silver is up $0.22 or 0.81% at $28.26
• Bitcoin is trading up $600 and $58,093. The low for the day reached $55,602 before snapping back to the upside.

Major US stock indices closed mixed with the Dow industrial average rising by 0.09%. The broader S&P fell by -0.16% while the NASDAQ index fell by -0.30%.

This article was written by Greg Michalowski at www.forexlive.com.