In 30 seconds: A slate of US economic data including JOLTS job openings, ISM and PMI manufacturing indices, and the Dallas Fed services index all came in softer than expected, pointing to a gradually cooling economy amid persistent inflation pressures. Brad Setser and others debate the scale of Chinese renminbi undervaluation—estimated at over 30%—and the surging East Asian trade surplus now approaching $2 trillion annually, with calls for exchange rate adjustment reminiscent of the Plaza Accord era. Rising oil prices and sticky inflation are pushing global government bond yields to multi-year highs, with Fed officials signaling potential rate hikes and markets reassessing the pace of monetary tightening. US military strikes on IRGC targets in Iran sent Brent and WTI crude oil prices up more than 5% to above $90 a barrel, marking the largest single-day oil price move since a prior US-Iran confrontation.
The economy is doing that thing where nothing is actually breaking but everything is getting a little worse, which is arguably the most unsettling configuration. Mostly weaker than expected. Start with the labor market. The job openings (actual) came in at 7.271 million, missing the expected 7.31 million. The picture underneath is more interesting. Job openings ticked up 89,000 on the month, but hiring fell to July hiring of 5.1 million, a post-Covid low, dropping 278,000. Quits slid 157,000 to 3.1 million, also a post-Covid low. Layoffs declined 119,000 to 1.7 million. Nobody is getting fired, but nobody is getting hired either, and nobody is quitting. You are stuck in your job and your job is stuck with you. The August Manufacturing PMI printed at 54.6, down 1pt month-over-month. The subcomponents were broadly softer: activity fell 3.0pt, new orders dipped 0.2pt, employment dropped 1.6pt, and backlogs contracted 3.2pt. S&P Global U.S. Manufacturing PMI (Final August) came in at 53.9 vs the flash reading of 53.2. Mixed against estimates, but both stayed above 50 in expansion territory. The annoying part is prices. ISM Manufacturing prices paid (August): 71.1. Manufacturing sentiment points to slower growth within an 'annoying economy' shaped by inflation and supply shocks. Construction spending fell 0.5%. The Services Index for August came in at 4.2.
China significantly underreports its current account surplus, and a bigger surplus mechanically translates into a bigger current account gap in the IMF's model. The estimate reflects conditions "at current policies" and, given lags, is really a measure of the undervaluation from roughly twelve months prior. China now ships roughly 500 billion euros of goods to the EU alone. Meanwhile, the huge fall in imports relative to GDP is a very China-specific outcome, not some broader emerging-market pattern. The currency undervaluation story extends well beyond China — all of East Asia is undervalued against both the USD and the EUR, and the surplus of East Asian exporters with weak currencies has doubled since 2023. The renminbi still trades within a band of +/-2% v the USD. Before the Plaza Accord, Japan's current account sat at 4 percent of GDP; afterward it fell to under 2 percent and stayed there until the shocks of the late nineties. The surplus does not stabilize without exchange rate adjustment.
Global bond yields climbed back to the highest level in almost two decades as rising oil prices fueled inflation concerns and investors ramped up expectations for interest-rate hikes. The 10-Year Treasury Yield closed at 4.80%, up 4 bp on the day. During the 60s–90s, yields keyed more off inflation than growth, producing an inverse correlation with equities. During the late 1990s up to 2022, yields keyed more off growth than inflation, producing a positive correlation. The rolling one-year correlation between yields and stocks has moved further into negative territory. Annual Eurozone inflation: 3.3%. Eurozone annual inflation jumped from 2.9% to 3.3% between July and August, hitting its highest since September 2023. Core and services inflation were more contained — both falling somewhat. In the US, the Fed cut rates by 50 bps. Rates have risen, not fallen, in every brief equity market break since Q3 2022. 10-Year Treasury Yield: 4.80%.
US military struck IRGC targets in Iran at 12PM ET today, and the oil market did what the oil market does when somebody starts a shooting war in the Gulf. WTI closed at $90.87 a barrel, up $5.11, or 5.96%, on the day. That is a large move. Brent jumped more than 5% as well, with the November Brent (front month) reaching its highest price level since May and sitting roughly ~$1 below its post-war high. The logic here is not complicated. If you are a trader and you see that the US is conducting kinetic operations against the IRGC, you buy oil. You do not wait for a detailed briefing on targeting scope. You do not consult your geopolitical risk model. You buy oil, and then you read the headlines. Both Brent and WTI breached $90 a barrel, a psychologically important level. If it is the latter, $90 a barrel oil is the number worth sitting with.
Here is where the labor market stands for your paycheck.
Initial jobless claims: 203,000, down 1.93% on the week
Continuing claims: 1,778,000, down 1.00% on the week
Job openings (JOLTS): 7,271.00, up 1.24% on the month
Quits rate: 1.90, down 5.00% on the month
Unemployment rate: 4.10, down 2.38% on the month