This supports the idea we discussed in our labor market analysis that the temporary layoffs in Texas due to the July storm were a major factor behind last week’s soft labor market report.

We expect the August report to show much stronger results, though this will depend on how the taxation data evolves throughout the month.

The market’s response to the initial claims report suggests that it is highly sensitive to U.S. data that could shift the risk outlook ahead of September.

We are still pricing in 37 basis points for the September FOMC meeting, though this is likely to change if the August NFP rebounds significantly, even if next week’s CPI print comes in on the soft side.

As a result, we remain in a wait-and-see mode regarding the curve steepener, as key figures like those seen yesterday could flatten the curve, especially with 2024 and 2025 pricing already being adjusted.

Chart 1: Texas was a main culprit behind the soft July labour market