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The August Job Report means more than ever



The United States Monthly Employment Report is always a big moment for investors, who see the numbers as an important data point for interpreting the health of the world's largest economy.
And at a moment when the fears of a US recession are growing, the numbers released on Friday could garner even more attention than usual.
The scene: The inversion of a closely monitored portion of the US yield curve in August triggered a sell-off of the stock market. Although a meeting has been triggered by news that the US and China are still talking about trade, the markets have not been able to shake a lingering sense of fear.

But the US Labor Reports, which hit at 8:30 PM ET, can empower those who want to stay silent through the end of the year. Economists polled by Reuters expect the US economy would have added 1

58,000 jobs last month. It is slightly lower than the July figure, but still positive.

My CNN Business colleague Anneken Tappe in New York points out that the figure is also above 140,000 three-month average.

"In a summer punctured by the trade-related market fluctuations, the healthy US labor market has been a steady source of insurance for the strength of the economy," Nela Richardson, investment strategist at Edward Jones, told Anneken.

Looks good: A reading of private sector employment on Thursday also looked healthy, while the Institute for Supply Management's non-industrial index for August rose.

But problems in the manufacturing sector, which contracted for the first time in three years in August, could still head on. New industry jobs are expected to drop to 8,000 in August – half of what they were in July.

On the radar, from Anneken: "Investors will also focus on wage growth figures, looking for any signs of a backlash in inflation, one of the most important metrics the Federal Reserve is looking at when setting monetary policy."

Good news about the work report could spell bad news for those expecting a Fed interest rate in September.

Approximately 91% of investors now expect a 25 basis point cut, according to CME Group's FedWatch tool. But the likelihood of no action at all ticking a little higher.

A German recession may be "anything but confirmed"

Readers of this newsletter know that Germany, Europe's largest economy, is on the brink of a recession, during the US and China trade wars, marking the global demand for cars and the spectrum of Brexit, all to slow growth.
  Germany's central bank gives warning warning

Fresh economic data released Friday did nothing to improve the picture. Industrial production fell 0.6% in July compared to last month. This is down 4.2% year-on-year. One of the biggest problems, according to Carsten Brzeski, ING's chief economist in Germany, is the lack of demand.

Claus Vistesen, head of the eurozone at Pantheon Macroeconomics, pointed to the data as evidence that "Germany's recession is anything but confirmed." That's partly because retail sales for July were also "horrible," he said.

"The numbers of August and September may still be surprises going up, but we do not have high hopes," Vistesen wrote in a research note. [19659006] Brzeski agrees. "Shrinking order books, high inventories and persistent external uncertainty are not good for the coming months," he said.

US banks are in a position of strength

It is fair to say that global banks are not looking forward to a period of even lower interest rates, which will eat into the lending margins.

But it is worth remembering that US banks will enter the next phase of monetary policy with a lot of muscle. Recent data from the Federal Deposit Insurance Corporation shows that banks insured by the agency collected $ 62.6 billion in profits in the three months ended June. This is up 4.1% from the same period in 2018.

It is a slower rate of growth than banks recorded throughout 2018, when tax cuts and a buzzing economy sent profits higher and higher. It may hit stocks. The KBW Nasdaq Bank index for large lenders is somewhat lower so far this year.

But even if the Fed cuts interest rates three times before the end of the year, the largest US players should continue to use in areas such as digital transformation. Their European competitors? Maybe not so much.

Forward

The United States work reports from August at 08:30 ET are today's major event.

Also today:

  • Federal Reserve Chairman Jerome Powell speaks at 12:30 ET in Zurich. His remarks will be live streamed.

Upcoming next week: The European Central Bank makes its move, and the UK Parliament weighs a snap election.


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