U.S. payrolls increase more than expected, wages rise
U.S. employers hired more workers than expected in July and raised their wages, signs of labour market tightness that likely clears the way for the Federal Reserve to announce next month a plan to start shrinking its massive bond portfolio. The Labour Department said that nonfarm payrolls increased by 209,000 jobs last month amid broad gains. June’s employment gain was revised up to 231,000 from the previously reported 222,000. Average hourly earnings increased nine cents, or 0.3 percent, in July after rising 0.2 percent in June. That was the biggest increase in five months. Wages increased 2.5 percent in the 12 months to July, matching June’s gain. Average hourly earnings have been trending lower since surging 2.8 percent in February. Lack of strong wage growth is surprising given that the economy is near full employment, but July’s monthly increase in earnings could offer some assurance to Fed officials that inflation will gradually rise to its 2 percent target. mEconomists expect the Fed will announce a plan to start reducing its $4.5 trillion portfolio of Treasury bonds and mortgage-backed securities in September.
German bond yields set for biggest weekly drop since April
Europe’s benchmark government bond yield was set for its biggest weekly fall since April on Friday as an investigation into suspected Russian meddling in the 2016 U.S. election fed into broader concerns about the health of the global economy. Reuters reported on Thursday that a grand jury has issued subpoenas in connection with a meeting before the election that included President Donald Trump’s son, his son-in-law and a Russian lawyer. For investors, the development serves as yet another sign that Trump may be distracted from seeing through ambitious spending plans that could support the world’s biggest economy. It also led to a weakening in the dollar, bolstering the euro’s recent strength which analysts said could hinder the single currency bloc’s recovery and force policymakers to keep monetary conditions very easy. “It has reduced growth prospects globally,” said Christoph Rieger an analyst at Commerzbank in Frankfurt. “The dollar’s weakness has only added to the euro’s strength, reduced earnings forecasts and supported demand for Bunds.” In the U.S., a run of lacklustre economic data has raised questions over how quickly U.S. central bankers can tighten monetary policy. Jobs and unemployment data later on Friday are key events on this front.
Brazil central bank signals another deep rate cut in September
Brazil’s central bank is likely to keep its fast pace of interest rate cuts in September after policymakers rejected the idea of signaling a more cautious move, according to the minutes released on Tuesday of its last policy meeting. The bank’s nine-member monetary policy committee, known as Copom, cut its benchmark Selic rate by 100 basis points on July 26, to a near four-year low of 9.25 percent. The minutes showed the policymakers considered flagging a smaller rate cut for their next meeting in September. But they opted instead to signal a rate cut of 100 bps. Lower interest rates should help Brazil’s economy recover after its worst recession on record ended in the first quarter. Annual inflation, which surpassed 10 percent less than two years ago, has plunged to just 2.78 percent, the lowest in 18 years and below the lower boundary of the official target range. Copom said the September rate cut will remain conditioned on the economic outlook and on prospects for measures to reduce public spending and boost productivity.