The Analytical Overview of the Main Currency Pairs on The Bank of Canada is likely to continue cutting rates amid a weak labor market. OPEC+ postponed the planned production increase

On Friday, the Dow Jones (US30) decreased by 1.01% (for the week -2.47%), while the S&P 500 (US500) was down 1.73% (for the week -3.64%). The NASDAQ Technology Index (US100) closed negative 2.55% (for the week -5.44%). The Dow Jones (US30) and S&P 500 (US500) fell to 3-week lows, while the NASDAQ (US100) fell to 4-week lows. Weakness in chip company stocks hurt the overall market on Friday, led by a 10% drop in Broadcom (AVGO) shares after the company gave a disappointing fourth-quarter earnings outlook. The weakness in the US labor market is a negative for the economy, and stocks rose less than expected after the US Nonfarm Payrolls rose less than expected in August, and the July employment number was revised downward.

US Nonfarm Payrolls for August rose by 142,000, weaker than expectations of 165,000. In addition, July Nonfarm Payrolls were revised downward to 89,000 from the previously announced 114,000. The August unemployment rate fell 0.1 to 4.2%, which aligned with expectations. Average hourly earnings in the US rose by 0.4% m/m and 3.8% y/y in August, slightly stronger than expectations of 0.3% m/m and 3.7% y/y. Federal Reserve Bank of New York President John Williams said that it is now appropriate for the Central Bank to lower interest rates given the progress in reducing inflation and cooling the labor market.

As 2025 approaches, analysts at Capital Economics said this week that they expect a moderate recovery for most of the world’s major economies after a challenging second half of 2024. According to the company’s analysis, two key themes will drive advanced economies: normalizing inflation and loosening monetary policy, which should support GDP growth.

Canada’s unemployment rate climbed to 6.6%, the highest since October 2021, reflecting the Bank of Canada’s fears of a cooling labor market, as evidenced by its recent 25 bps rate cut. In addition, economic activity contracted for the first time in 13 months. Ivey’s PMI fell to 48.2, the lowest since December 2020, as employment growth slowed and price pressures intensified, further supporting the need for further easing.

Equity markets in Europe were declining on Friday. Germany’s DAX (DE40) was down 1.48% (for the week -3.23%), France’s CAC 40 (FR40) closed down 1.07% (for the week -3.63%), Spain’s IBEX 35 (ES35) was down 0.89% (for the week -1.94%), and the UK’s FTSE 100 (UK100) closed down 0.73% (for the week -2.33%). Eurozone GDP growth for the second quarter was revised downward to 0.2%, in line with concerns that restrictive monetary policy has a greater impact on the bloc’s economy, especially in its largest representative, Germany. Consequently, markets have increased bets that the central bank will stay on course for another 25 bps rate cut next week.

WTI crude oil prices fell by 2.1% to hit $67.70 a barrel on Friday, the lowest since June 2023. As oil began to fall sharply in price, OPEC+ postponed a planned 180,000 barrels a day production increase until December, which would have added about 2.2 million barrels a day to the market by the end of next year. However, recent economic data from China and the US have highlighted weakness in their manufacturing sectors, raising concerns about further demand weakness.

Asian markets were mostly down last week. Japan’s Nikkei 225 (JP225) decreased by 6.75%, China’s FTSE China A50 (CHA50) was down 1.48%, Hong Kong’s Hang Seng (HK50) lost 2.34%, and Australia’s ASX 200 (AU200) was negative 0.97% for the week. The Hang Seng Index (HK50) was near its lowest level in three weeks after fresh data showed that China’s consumer prices rose less than expected in August, and the decline in producer prices continued. The fall was topped by data on foreign exchange reserves in Hong Kong, which hit a five-month high last month, while on the mainland, they were the highest since 2015.

China’s annual consumer prices rose to a six-month high of 0.6% in August 2024 from 0.5% in the previous month, although the increase fell short of the projection of a 0.7% rise. The moderate rise in consumer inflation reflects Beijing’s continued efforts to boost domestic consumption amid a slowing economy. Meanwhile, China’s producer prices continued their downward trend, falling 1.8% year-on-year in August, following a 0.8% decline in July and exceeding the expected 1.4% drop. This marked the 23rd consecutive month of producer price deflation and the sharpest decline since April, indicating continued weakness in domestic demand.