ISM Services PMI
News release day: Tuesday, August 5
In the latest U.S. PMI report, there was a sharp divergence between the manufacturing and services sectors. Although the reports from ISM and S&P Global do not have a strong correlation, they can provide an outlook on the production situation in their respective sectors.
Production growth in July was mainly concentrated in the services sector. There was a significant increase in employment levels, marking the highest since January. In addition, labor shortages have driven wages higher in this sector. Meanwhile, services sector inflation has remained subdued in recent months, due to weak consumer demand.
There is a risk of rising services sector inflation if wage growth increases; however, given the weakness in the labor market, employees do not seem to have the bargaining power to demand higher pay. For now, due to weak labor demand, there is no risk of rising wages.
It is expected that the services sector boom will continue, and we may see the PMI expand to 51.5.
Market Impact
Paying attention to the details of the data will be highly important under current conditions; the market, in particular, will closely focus on the employment index. If the data comes in above expectations, it will be seen as a sign of expanding U.S. industrial activity, strengthening the U.S. dollar while negatively impacting the euro and gold. If the data indicates signs of inflationary pressure or a booming labor market, expectations for interest rate cuts will decrease, and risk assets will decline under risk off sentiment.
If the data comes in below expectations, the dollar will weaken, and the euro and gold will rise.
In this scenario, any weakness in the labor market will increase expectations for interest rate cuts, and risk assets will rally.
Unemployment Claims
News release day: Thursday, August 7
Last week, initial jobless claims remained nearly unchanged. A lower level of initial claims indicates limited layoffs; however, continuing jobless claims remain at their highest levels since 2021, suggesting that individuals are spending more time finding employment. In addition, the decline in voluntary quits indicates that people lack confidence in finding a new job within a short time frame.
Continuing jobless claims are likely to put upward pressure on the unemployment rate in the second half of the year. The U.S. unemployment rate has so far remained stable due to a decline in the labor force participation rate; however, along with the decrease in participation, labor demand has also fallen, resulting in a balance between supply and demand in the labor market. This balance has so far prevented wage growth from accelerating.
Market Impact:
This data is released weekly and usually does not trigger a strong market reaction.
If the data comes in above expectations (jobless claims higher than expected), it will be seen as a sign of further labor market weakness and will weaken the U.S. dollar; in this scenario, gold and the euro will strengthen. Risk assets such as stocks and cryptocurrencies typically do not react strongly to this data unless there is a significant deviation from expectations.
Conversely, if the data comes in below expectations, it will be considered a sign of labor market improvement and may strengthen the U.S. dollar. However, in the medium term, the dollar’s strength will depend on additional labor market data.
In this scenario, gold and the euro will decline.