Ahead Today
G3: US factory orders and durable goods orders
Asia: -
Market Highlights
Nonfarm payrolls increased by only 73,000 in July, below Bloomberg’s consensus estimate of 104,000. Compounding the disappointment, June payrolls were revised sharply lower by 133,000 to a mere 14,000. The unemployment rate rose to 4.2% from 4.1% in June, reflecting a softening in labour market conditions. In the manufacturing sector, activity remained in contraction. The ISM manufacturing index fell to 48.0 in July from 49.0 in June. The employment sub-index declined further to 43.4, suggesting continued weakness in hiring. On a positive note, the prices paid sub-index dropped to 64.8 from 69.7, potentially reflecting easing trade tensions.
Financial markets reacted to the weaker jobs data, with expectations for US monetary easing rising sharply. Market pricing for Fed rate cuts has increased to 64bps for the remainder of the year, up from 33bps prior to the payrolls release. The probability of a rate cut in September surged to more than 90%. The US dollar weakened by 0.8% last Friday, while USDJPY fell 2.2%, which marked its largest one-day decline in USDJPY since April 10. US Treasuries rallied in a bull steepening move, with the 2-year yield dropping 28bps and the 10-year yield falling 16bps.
On the political front, President Donald Trump dismissed the chief labour statistician following the substantial downward revisions to the May and June payrolls data. He has also intensified criticism of Fed Chair Powell, urging him to resign in the wake of Fed Governor Kugler’s resignation. Trump called for substantial rate cuts and suggested that if Powell refuses to act, the remaining members of the Federal Reserve Board should take control of policy decisions. This marks a notable escalation in political pressure on the Fed, which has traditionally operated independently of the executive branch. Meanwhile, policymakers Christopher Waller and Michelle Bowman, who dissented from the Fed’s decision to hold rates steady in July, voiced concerns that maintaining an elevated policy rate could risk hurting the labour market.
Regional FX
Asian currencies delivered a mixed performance last Friday, with the Singapore dollar (SGD) leading regional gains, appreciating by 0.6% amid broad weakness in the US dollar. In contrast, VND and TWD declined by 0.6% and 0.5%, respectively. President Donald Trump announced a 20% tariff on goods imported from Taiwan, higher than the rates imposed on Japan and South Korea. The Taiwan government indicated that trade negotiations may result in a lower tariff rate. Vietnam has also been assigned a 20% tariff under its trade agreement with the US. Looking ahead, the implementation of higher tariffs could weigh on export performance across the region. However, if the Fed resumes rate cuts in September and signals a more dovish policy stance, it could potentially offer support to Asian currencies.
