Expect further labor market tightening in US

This week, as every first week of the month, market attention will be focused on the non-farm payroll report on Friday. An increase of 200k is expected in the headline number (190k for the private payroll), a steady unemployment rate of 5.1%, and a 2.4% y/y increase in wages. 

"We see these figures as robust indicators of tighter labor market conditions and supportive of inflation in the months to come. On that regard, PCE numbers will be published on Monday", says Barclays.

A 1.2% y/y increase is expected in the core figure and a flat reading for the headline number. Lastly, manufacturing ISM will be released on Thursday, for which a mild decline is expected from 51.1 to 50.5, in line with consensus expectations of a decline to 50.6.

"In terms of price action, we uphold our view of further USD outperformance versus the emerging market currencies as risk premia remains elevated on China growth, outflows, and policy opacity concerns", added Barclays.

Compared with developed countries, the USD is expected to appreciate particularly vis-a-vis the euro, as the ECB will have to ease monetary conditions at some point before year-end in order to meet its inflation target.