The Weekly Update

The focus of the economic calendar last week was US employment data with a (seasonally adjusted) growth in nonfarm payrolls of 201k, beating forecasts of 190k, but with prior month’s data revised down from 157k to 147k. A concurrent uptick in wages of 2.9% year-on-year (above forecasts of 2.7% and previously lacklustre) gave support to the positive US employment picture; US Treasuries rose 8 basis points over the week to yield 2.94%. Robust PMIs reinforced this narrative with manufacturing PMI hitting a 14 year high of 61.3 and non-manufacturing PMI rising to 58.5. Contrasting this however are the ongoing US trade disputes with data showing a July trade deficit of over $50bn: as its trade deficit with China and the EU hit records of $36.8bn and $17.6bn respectively.

Elsewhere, Italy was forced to react to market concerns and a negative outlook from Fitch with a number of officials promising lower government budget deficits for 2019. Nearby Sweden took to the polls over the weekend with concerns over the far-right Sweden Democrats failing to materialise as they ended up a distant third with less than 18% of the vote.

With continuing Emerging Market contagion fears from Argentina and Turkey, South Africa was not so resilient following data showing its first recession in nine years; then the following day bolstering the disappointment with factory output data down the most in over two years. The slowdown in the agricultural sector was a major driver of the economic weakness, but political and policy uncertainty were also major unquantifiable factors. In the current atmosphere of contagious apprehension, this was enough to send the South African rand down 6% so far this month pushing the currency’s depreciation in excess of 20% year-to-date. The sharp depreciation echoes the collapse of the currency towards the end of 2015 – when Zuma booted his Finance Minister proving his reckless disregard of markets.

The week ahead has some important economic release to watch following last week’s employment data: paramount will be the US CPI figures this Thursday. Other highlights include both the Bank of England and European Central Bank policy decision on Thursday along with various industrial production releases throughout the week and US retail sales on Friday.

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