The market ushered in the last trading week of August after last week's Jackson Hole symposium. The US non-agricultural jobs report will kick off the September trading month. The market expects the growth of non-farm payrolls to slow down by half in August, from a five-month high of 528,000 to 290,000. The unemployment rate is expected to remain at 3.5%, and the average hourly wage rate is expected to fall from 0.5% to 0.3%.
The US employment picture was robust in the year's first six months. However, while the country has not yet reached its maximum employment level, a labour shortage persists, with job vacancies nearly double the number of unemployed job seekers. Nevertheless, US employment hit a record high of about 153 million persons in July, and the unemployment rate remains at its lowest level in half a century.
Average hourly earnings rose 5.2% in the year to June, about two percentage points higher than the pre-pandemic pace. However, the pace of growth is only slightly slower than earlier in 2022, suggesting that it will take some time before wage growth returns to previous levels.
Employment is expected to decline in August.
However, the labour market trend may start to weaken gradually. As the US economy contracts, companies are more cautious in their expansion and recruitment efforts. Major companies, including Wayfair, Apple, and Walmart, have recently announced layoffs.
If the non-farm employment growth slows down this week, it will verify market concerns about the US economic outlook. The dollar was trading close to a five-week high last week and may re-adjust downwards. The resistance posed by the double top on the daily chart this week does not rule out the dollar index hitting the 107 mark or falling further to seek support at 106.26.
On the other hand, the slowdown in employment conditions could be a strong motivator for the Federal Reserve to slow down interest rate hikes, which may trigger a rally in the stock market. As a result, the Dow recently accelerated its decline from its April highs, with 32,600 acting as its next support level.
Equities and fixed-income products recently staged their worst collective sell-off starting in June after spending most of the previous two months in an uptrend. Meanwhile, 10-year US Treasury yields remained above 3% for the majority of last week, as the market expected the Federal Reserve to maintain its aggressive rate hike pace.
A possible slowdown of interest rate hikes
Furthermore, starting this week (September 1), the Fed is about to accelerate the implementation of its quantitative tightening (QT) plan, which will increase the scale of the monthly balance sheet reduction to 90 billion US dollars. As a measure to further tighten monetary policy, US bond yields tend to rise by shrinking its balance sheet, and US stocks will naturally encounter some resistance.
An uptrend in US stocks will likely be affected by the current economy. As the Federal Reserve continues its most aggressive interest rate hike cycle in decades, the safe-haven status of US government bonds has been shaken. Hence, 2022 is expected to be the most volatile year for government bond yields in over ten years, which indirectly affects the US dollar and US stocks as they oscillate together.