Daily Economic Update

US: Job gains come to near standstill in an abrupt weakening, Trump fires BLS head citing ‘rigged’ data.  Non-farm payroll gains came in much lower than the forecast at 73K in July, with increases concentrated in just a few sectors and several, including manufacturing, seeing a fall in employment. More importantly, the number of job additions in May (19K) and June (14K) were revised down heavily, by a combined 258K, resulting in an average monthly increase of just 35K in the last three months versus 168K in 2024. The BLS cited changes to seasonal adjustment factors and updated survey responses as the reason for ‘larger than normal’ revisions. The unemployment rate ticked up to 4.2%, in line with expectations, from 4.1% in June and stayed within the narrow 4-4.2% range seen since May 2024. Wage growth also rose to 0.3% m/m (3.9% y/y) from June’s 0.2% (3.8%), broadly matching the market forecast. The weak job prints have dramatically reversed the narrative on supposedly solid labor market conditions, as characterized by Powell last week. After the release of the labor market data, President Trump labelled the BLS report as “rigged” and allegedly politically manipulated and immediately fired the commissioner of the agency. While we note that the quality of the labor market reports such as non-farm payroll and JOLTS has been hampered by ‘below-desirable’ levels of survey response rates, labelling one of the most critical reports as rigged, and politicizing the matter by the firing and appointment of a new commissioner could render future labor market reports as doubtful. This would not only undermine the credibility of such critical reports in the future but may also add to uncertainty for the Fed and other policymakers amid the current volatile macroeconomic environment. All that will be looked at unfavorably by the markets. Meanwhile, a Fed governor, Adriana Kugler stepped down from her position at the Fed before the expiry of her term in January 2026. Trump is expected to use the opportunity to nominate her replacement as a likely Fed chair candidate when Powell’s term ends in May 2026. Although FOMC decisions are based on votes from 12 members, Powell’s successor will be more dovish given Trump’s constant berating of Powell for not cutting interest rates. Amid weak economic data, tariff updates and other Trump policies including renewed frictions with Russia, US and most global equity markets saw aggressive selloffs, with S&P 500 dropping 1.6% d/d on Friday. Markets also raised bets for Fed rate cuts, now seeing a near-certain 25 bps cut at the Fed’s September meeting and pricing in an additional down move before the end of the year from just one following the Fed meeting last Wednesday. UST yields also declined steeply across the curve, with 10Y yields falling around 17 bps to close at almost 4.2%.

US: Trump sets ‘adjusted reciprocal tariff’ rates on most countries and ramps up for some.  President Trump set a minimum 10% global tariff rate and a minimum 15% on countries having sizeable trade surpluses with the US, to be effective from August 7, just ahead of the previous August 1 deadline. Excluding previously announced trade frameworks with several partners including the EU, Japan, South Korea, Vietnam, and China, most other countries saw tariffs broadly similar to previously announced ‘Liberation Day’ reciprocal rates. He also hit many partners with higher than previously mulled duties such as Switzerland (to 39% from 31%), Canada (to 35% from 25%) and Turkey (to 15% from 10%). He also extended the current tariff structure on Mexican goods for 90 days. However, USMCA compliant goods from both Canada and Mexico would continue to trade duty free but sectoral tariffs on other products will remain in place. Most of these affected nations stated that negotiations were still ongoing and therefore, the applicable final rate could be lower. Additionally, there was no confirmation from Trump on the extension of the current trade pact with China for 90 days as reported by some media news. Overall new duties were broadly in line with what the Trump administration communicated recently except in some cases such as Switzerland and Canada. Minimum 10-15% import tariffs have again refueled concerns about their inflationary impact. As businesses increasingly pass through higher tariffs to customers, the latest June PCE inflation report, which saw core inflation increasing at its four-month high rate of 0.3% m/m (2.8% y/y), underlined sharply accelerating price rises for some consumer goods. Finally, in escalating geo-political tensions, Trump ordered two nuclear submarines to be stationed in “the appropriate regions” following “highly provocative statements” from former Russian president Dmitry Medvedev. Medvedev engaged in a war of words with Trump after the latter shortened the time frame for Russia to agree on a ceasefire with Ukraine. Trump also appeared to contemplate imposing fresh US sanctions on Russian oil flows, including on its buyers.

Eurozone: Headline and core inflation steady in July, but lower services inflation.  Consumer price inflation was steady at 2% y/y in July, coming slightly higher than consensus estimates of 1.9%. Core inflation was also unchanged at 2.3% y/y, exceeding the 2.2% forecast. The closely-watched services inflation series fell to 3.1% y/y (3.3% in June), the lowest since early 2022, confirming the broad disinflationary trend. Following an aggressive eight 25 bps interest rate cuts since June of last year, which brought the policy rate down to 2%, the ECB is expected to either stay on hold or cut one more time before year-end. However, uncertainty around the outlook remains elevated, given a still-developing trade/tariff impact. The ECB expects inflation to average 2% in 2025, falling to 1.6% in 2026, and then increasing to its target of 2% in 2027.

Chart 1: US jobs gains and umemployment rate   Source: Haver

Chart 2: Saudi Arabia GDP growth (% y/y) Source: Haver

Saudi Arabia: Non-oil growth continues to be robust in Q2. Official flash estimates showed that GDP grew by 3.9% y/y in Q2 25, the second strongest quarterly growth in more than two years, from 3.4% in the previous quarter. Non-oil growth remained robust at 4.7%, only slightly lower than the 4.9% recorded in the previous quarter, while oil sector growth jumped to 3.8% (from -0.5%), the fastest expansion since Q4 22 and prior to OPEC production cuts. Meanwhile, government activities rose 0.6% y/y. Looking back at the first half of the year, overall GDP growth averaged 3.7% y/y compared to -0.1% in the same period of 2024, lifted in large part by the ongoing recovery in oil sector output. With non-oil sector growth expected to ease slightly but remaining robust in H2 25 on solid private sector led demand, overall GDP growth is projected to accelerate to 3.7% in 2025 from 1.8% the previous year.

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