The latest Market Talks covering FX and Fixed Income. Published exclusively on Dow Jones Newswires throughout the day.
1318 ET - "Here we go again," says Santander's Stephen Stanley when characterizing the 23,000 drop in July payrolls. He says that for the third year in a row, payrolls fell off a cliff in the summer, leading the Fed to panic and begin easing in September. In each instance, jobs snapped back in the fall, he says, and he expects the same pattern this year. As for the Fed's response, Stanley thinks this time will be different. "Policymakers broadly see the labor market as stable, and back-to-back 30K gains in private payrolls are not soft enough to convince them otherwise, especially as the unemployment rate is dropping." He also points to comments following July jobs from Richmond Fed's Barkin characterizing the labor market as in a "weak balance," signaling he has not sharply changed his assessment. (patrick.sheridan@wsj.com)
1204 ET - The July jobs report showed annual average hourly earnings growth falling to 3.2% from 3.5%. One likely explanation for weakness--despite the labor market tightness--is that workers are reluctant to push for higher wages, says William Blair's Richard de Chazal. He says that could be happening "if they feel their jobs might be at risk from AI." He also says the idea that improvements in technology increase efficiency and spurs rising consumption, the so called Jevons Paradox, might be playing out in the labor market "whereby negative real wage growth is encouraging companies to take on more workers." Regardless of the weakness in July payrolls, de Chazal says the Fed will keep the focus "firmly on the inflation side of its mandate." (patrick.sheridan@wsj.com)
1138 ET - Richmond Fed President Tom Barkin said the July jobs report was consistent with how he has seen the state of the labor force. "I think this was very consistent with how I've been seeing the labor market, which is it's not loose, it's not tight, it's sort of in a weak balance, if I could put it that way." "We're in a zero-ish workforce growth environment, and we're in a zero to modest positive jobs growth environment," he added. (jessica.coacci@wsj.com)
1102 ET - The New York Fed's survey of consumer expectations reported that households' inflation expectations decreased slightly at the short-term horizon and remained unchanged at the medium-and longer-term horizons. The three-year and five-year-ahead horizons were unchanged at 3.3% and 3.0%, the report said. Officials at the central bank monitor long-run inflation expectations to ensure price pressures don't become a self-fulfilling prophecy if they become unanchored. The report will likely be an encouraging signal for policymakers. (jessica.coacci@wsj.com)
1051 ET - The July jobs report showing a 23,000 loss in payrolls but a slight decline in the unemployment rate, puts the Federal Reserve in an increasingly uncomfortable position, says SS Economics' Sung Won Sohn. "The economy is cooling, but inflation remains elevated because of tariffs, energy costs and geopolitical disruptions. Raising interest rates could worsen the employment slowdown. Lowering rates could intensify inflation. The central bank is caught between the two sides of its mandate," he says. While he cautions that one bad month does not establish a recession, he says the combination of job losses, substantial downward revisions, declining labor-force participation and weak wages cannot be dismissed as statistical noise. "The labor market's margin of safety has become dangerously thin," he says. (patrick.sheridan@wsj.com)
1039 ET - U.K. economic growth is set to slow after a "thumping start to the year," though momentum should remain healthy, Deutsche Bank's Sanjay Raja and Maui Brennan say in a note. GDP is expected to run at 0.4% on-quarter growth in the second quarter, which would mark a second consecutive quarterly upside surprise relative to forecasters' expectations at the start of the year, they say. "The U.K. economy now sits nearly 0.4% larger than what most expected coming into 2026." Looking ahead, the headline pace of growth is unsustainable, given it is running at nearly 1.8% on an annualized basis, the economists say. The energy shock should pass through over the coming months, with GDP growth averaging 0.1% on quarter for the rest of the year. (edward.frankl@wsj.com)
1037 ET - "The July jobs report provides more noise than signal," says RSM's Joe Brusuelas. He cites the dichotomy between the 23,000-topline loss in jobs versus the decline in the unemployment rate to 4.1%. Brusuelas says the reading strongly implies seasonal issues at the Bureau of Labor Statistics and noise around the post World Cup labor market that included sharp declines in leisure, hospitality, and retail employment. "Moreover, the outsized decline of 50,000 in state and local employment looks highly suspect in our evaluation," he says. Brusuelas believes today's report won't move the needle at the Fed or among investors because of the inconsistencies in the data. "If anything, this likely will provide support to those at the central bank that are counseling patience on hiking rates," he says. (patrick.sheridan@wsj.com)
1036 ET - U.K. short-term government bonds could outperform their eurozone counterparts, Bank of America strategists say in a note. The Bank of England looks less likely to increase interest rates in the near term given U.K.'s weak economic data, while the European Central Bank has a higher possibility of raising interest rates, the strategists say. (miriam.mukuru@wsj.com)
1028 ET - Landing on day of a soft U.S. payroll result, the contrast with Canada's surprisingly upbeat job market reading is stark, says Bank of Montreal's Douglas Porter. "Not unlike the GDP bounce from weakness at the turn in the year, the job figures are very much echoing the rebound." The big employment gain in Canada for July hints at building momentum even as trade uncertainty still looms, Porter says. Yet with wage growth cooling further and energy prices more moderate, he doesn't expect the Bank of Canada to take on a more hawkish tone yet. (robb.stewart@wsj.com; @RobbMStewart)
1018 ET - A surge in Canadian employment in July following a strong preliminary second-quarter GDP growth estimate is further evidence the economy is gaining momentum after a weak start to the year, Capital Economics'Ariane Curtis says. Yet while the Bank of Canada is likely to sound more hawkish following the fall in the unemployment rate to a two-year low, it is unlikely to rush into tightening policy given the ongoing softness of wage growth and core inflation, the economist says. For now, Capital is sticking to the view that the bank will remain on hold this year. (robb.stewart@wsj.com; @RobbMStewart)
1004 ET - A strong Canadian jobs report for July adds strength to the view the economy is shaking off softness seen at the start of the year, Fitch Ratings' Jessica Hinds says. A roughly 75,000 rise in employment for the month was driven by full-time workers and concentrated in the private sector, which Hinds says are clear signals that underlying economic momentum is building. A drop in the unemployment rate to a two-year low of 6.4% adds to the positive data. Add to that a further slowdown in wage growth, and the Fitch director says it suggests the Bank of Canada will continue to look through current high energy prices and keep interest rates on hold.(robb.stewart@wsj.com; @RobbMStewart)
0959 ET - The Bank of England could increase the sale of short-dated gilts under its quantitative tightening program, or maintain the skew towards more shorter-dated sales rather than long-dated gilt sales, Bank of America strategists say in a note. Quantitative tightening is the process of reducing the BOE's bond holdings purchased during previous periods of quantitative easing. Bank of America strategists estimate the BOE could cut the pace of QT to 50 billion pounds ($67 billion) in the 12-month period starting in October, from 70 billion pounds currently.
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