ADP Employment Report 

U.S. employers in August unveiled the greatest number of layoffs in five months, led by cuts in the technology sector, amid a cloudy outlook for growth and ongoing cost concerns, a monthly tally of workforce reduction announcements showed on Thursday.

Firms announced 75,891 layoffs last month, roughly triple the number in July and the largest month-to-month increase in a year, outplacement firm Challenger, Gray and Christmas said. Still, announced staff reductions are down 3.7% year to date.

"August's surge in job cuts reflects growing economic uncertainty and shifting market dynamics. Companies are facing a variety of pressures, from rising operational costs to concerns about a potential economic slowdown, leading them to make tough decisions about workforce management," Challenger Vice President Andrew Challenger said in a statement.

The data comes amid growing concern about the job market as recent government reports have shown increases in the unemployment rate and in the number of layoffs in July. The softening tone to employment data has caught the eyes of Federal Reserve policymakers, who are now expected to kick off interest rate cuts this month to protect the job market from a rapid deterioration.

More than half of August's cut announcements were in the tech sector, totaling 39,563, up sharply from around 6,000 in July and the most since January 2023. The health sector had the next largest announced layoffs at 6,158.

Source: Theedgemarkets

Japanese Prime Minister Fumio Kishida makes a whirlwind visit to South Korea on Friday, seeking to seal a newfound partnership between the neighbours which will be tested by imminent changes of leaders in Tokyo and Washington.

Prodded by US President Joe Biden, Kishida and South Korean President Yoon Suk Yeol orchestrated an about-face in ties that had sunk to their lowest level in decades, amid acrimonious diplomatic and trade disputes over Japan's occupation of Korea from 1910 to 1945.

The leaders will review progress on their efforts to step up cooperation between the countries and discuss ways to deepen their partnership, according to Yoon's office.

Kishida has announced that he would step down in September and Japan's ruling Liberal Democratic Party will hold elections on Sept 27 to choose his successor.

Yoon and Kishida will hold a summit meeting on Friday afternoon. Kishida is expected to return to Tokyo on Saturday.

On his farewell visit, Kishida will seek to push the ties forward, broadening the relationship to partners working closely together on the international stage, a Japanese foreign ministry official told a briefing.

Their meeting will also be watched for any outcome of ongoing discussions between the two countries on evacuating each others' citizens from an emergency in a third country, and expediting border checks for travellers.

Yoon has made it a diplomatic priority to mend ties with Japan and improve security cooperation to tackle North Korea's military threats.

At a summit with Biden at Camp David last year, the three leaders committed to deepen military and economic co-operation, agreeing to initiatives explicitly designed to prompt long-term partnership, a senior US official said.

The United States is confident Kishida's successor will be as committed to continuing the renewed alliance and that "all of these projects we've been working on together are going to continue at pace under new leadership," Mira Rapp-Hooper, senior official at the White House National Security Council, said.

"Both Prime Minister Kishida and President Yoon took on a great deal of personal risk and political risk to move forward the warming of their bilateral ties in ways that prior governments just hadn't been able to accomplish," she said.

Despite the public expression of lasting partnership from the three capitals, there is lingering question whether the Asian neighbours can maintain the kind of genuine rapprochement that will put their historic woes behind with new leaders in place.

"Even if a country's foreign policy is dictated by its national interests and its values, the changes of government bring changes at least in the tones and approaches of foreign policy," said Kim Hyoung-zhin, former South Korean deputy foreign minister recently studying in Japan.

Kishida is likely to be met by protesters in Seoul, who say Tokyo has not done enough to atone for its wartime past.

Source: Theedgemarkets

USD/CAD continues to lose ground for the third successive day, trading around 1.3500 during the Asian session on Friday. Traders are likely to await Friday's release of employment data from the United States (US) and Canada. The US Nonfarm Payrolls (NFP) will be in the spotlight as it may offer further insights on the potential size of an anticipated rate cut by the Federal Reserve (Fed) this month.

The US Dollar (USD) faces challenges following the dovish comments from Federal Reserve (Fed) officials. Chicago Fed President Austan Goolsbee said on Friday that the longer-run trend of the labor market and inflation data justify the Fed easing interest-rate policy soon and then steadily over the next year. FXStreet’s FedTracker, which gauges the tone of Fed officials’ speeches on a dovish-to-hawkish scale from 0 to 10 using a custom AI model, rated Goolsbee’s words as neutral with a score of 3.8.

Additionally, San Francisco Federal Reserve President Mary Daly stated on Wednesday that "the Fed needs to cut the policy rate as inflation is declining and the economy is slowing." Regarding the size of the potential rate cut in September, Daly noted, "We don't know yet." Atlanta Federal Reserve President Raphael Bostic said that the Fed is in a favorable position but added that they must not maintain a restrictive policy stance for too long, per Reuters.

The upside potential of the commodity-linked Canadian Dollar (CAD) could be limited by falling crude Oil prices, especially given Canada's position as the largest Oil exporter to the United States. West Texas Intermediate (WTI) trades around $68.70 at the time of writing, marking a fresh 2024 low amid concerns over demand in both the US and China. However, a delay in OPEC+ Oil output increases and a significant drawdown in crude oil inventories may help cushion WTI’s losses.

In Canada, the Net Change in Employment for August is expected to show an increase of 26.5K new jobs, recovering from the previous decline of 2.8K. However, the Unemployment Rate is projected to rise slightly to 6.5%, compared to the previous reading of 6.4%.

Source: FXSTREET

Energy – OPEC+ delays supply increase

It was no surprise given the recent pressure on the oil market that OPEC+ members yesterday decided to delay plans to phase out their additional voluntary cuts. Members were set to bring 180k b/d of supply onto the market in October and a similar amount in November. Instead, plans to increase supply have been pushed back by two months. Therefore members are now scheduled to gradually bring back 2.2m b/d from December 2024 through until November 2025.

Markets appear to be underwhelmed with the move. ICE Brent settled basically flat yesterday. Clearly sentiment is still negative given worries over demand. OPEC+ is likely hoping that sentiment turns more positive over the course of the next two months, allowing them to start bringing supply back to the market. However, the issue is that the oil balance is in surplus over 2025, suggesting that prices are likely to remain under pressure without OPEC+ taking longer term action. There could also be an element where OPEC+ is waiting for the outcome of the US election. A Trump victory could mean that the US takes a more hawkish view against Iran once again and so stricter enforcement of oil sanctions. This could potentially see as much as 1.3m b/d of Iranian supply impacted, which would allow other OPEC+ members to unwind their additional voluntary cuts.

Yesterday’s delayed EIA inventory report was fairly constructive. US commercial crude oil inventories fell by 6.87m barrels over the last week, while crude stocks in Cushing declined by 1.14m barrels. The draw was largely driven by lower crude imports, which fell 768k b/d WoW. Refined product stock changes were less supportive. Gasoline inventories increased by 848k barrels driven by weaker demand, as we move towards the end of the driving season. Implied gasoline demand fell by 369k b/d over the week. Meanwhile, distillate stocks dropped by 371k barrels.

In the US, Henry Hub natural gas rallied by a little more than 5% yesterday after US natural gas storage increased less than expected. EIA weekly data shows that US gas storage increased by 13Bcf last week, which was less than the 27Bcf increase the market was expecting and also well below the 5-year average increase of 51Bcf. Total gas storage is still 6.6% higher than year-ago levels and also 10.7% above the 5-year average. However, the gap has been narrowing over much of the injection season.

Metals – Iron ore tumbles on demand worries

Iron ore fell for a fourth consecutive session yesterday to trade just above $90/t, its lowest level since 2022. Iron ore is one of the worst-performing commodities so far this year with prices now down about 33% year-to-date as the outlook for steel demand in China continues to deteriorate. Iron ore is among the most vulnerable to China slowdown risks with China’s property market constituting the bulk of steel demand. Looking ahead to the rest of the year, fundamentals are still pointing to the downside for iron ore.

Meanwhile, iron ore port holdings in China continue to rise, back above 150 million tonnes and standing at its highest ever for the time of year, in a sign of abundant seaborne supplies. We expect iron ore prices to fall further this year amid subdued demand and sufficient supply. Downside risks are likely to prevail in the near term amid subdued steel demand.

(Sept 6): Japan’s household spending was largely unchanged in July, adding to concerns that overall economic growth will stay tepid in the current quarter.

Real outlays, adjusted for inflation, advanced 0.1% from a year ago, the Ministry of Internal Affairs reported on Friday. The result missed the consensus forecast of a 1.2% gain, and spending declined 1.7% from June.

Spending on housing and education jumped, while outlays on transportation and food declined.

Private consumption slumped for more than a year until the second quarter, as sticky inflation prompted households to tighten their budgets. The mostly flat reading in Friday’s data indicates the economy may lose momentum in the three months through September. 

“I think everyone was writing a storyline that positive wage growth would boost consumption, but it hasn’t worked out that way,” said Yutaro Suzuki, an economist at Daiwa Securities. “I don’t think it’s getting any worse, but at the same time there’s no feeling it’s going up.”

The weak spending results come even as recent wage data have painted a brighter picture. Data on Thursday showed that real wages rose for a second straight month in July after advancing in June for the first time in 27 months. 

The Bank of Japan has long sought a virtuous economic cycle in which wage growth fuels spending, leading to demand-led price growth. The spending figures cast a cloud over the prospects for achieving the cycle, as persistent inflation continues to discourage households from loosening their purse strings.

Friday’s data may raise some concerns about the prospects for finally breaking free from deflation for the government, just as a leadership transition gets underway. The ruling Liberal Democratic Party (LDP) is set to elect a new president on Sept 27. Given the LDP’s dominance in Parliament, the party election is all but certain to determine the nation’s next premier after Prime Minister Fumio Kishida announced his intention to step down.

The pain of inflation helped fuel voter dissatisfaction with Kishida, leading to persistently low approval ratings. In addition to a temporary tax cut, his administration reinstated utility subsidies for three months through October in a bid to soften the blow from rising energy prices. 

The BOJ has pledged to keep raising interest rates if inflation develops in line with its outlook. The central bank under governor Kazuo Ueda has been raising its policy rate this year faster than many analysts had expected. Yet, the BOJ has also said it will closely monitor the fallout of the recent market crash on prices as it mulls the pace and timing of further hikes. 

Source: Theedgemarkets