EU: Evika Silina Confirmed As New Latvian Prime Minister

Some of the slowdown in labour market activity appears supply-driven as well as demand driven, though the extent to which is difficult to ascertain.

• A German IFO survey of 9000 German companies out today showed 43.1% of firms reporting a shortage of qualified workers in July, up from 42.2% in April 2023 (albeit lower than the all-time high of 49.7% in July 2022).
• Services firms are particularly hard-hit, per IFO 2/3 of transport, architecture, and engineering firms report skilled worker shortages.
• The share of manufacturing firms saying the same is lower at 34.6%, with some areas (IT equipment 43.1%, machinery/equipment makers 40.9%) affected in varying ways. And for construction and trade, under 1/3 report skill shortages.
• The tickup in skill shortages, particularly in the services sector, could help underpin overall wage growth amid competition for workers. More generally though it appears to be an impediment to employment gains and overall economic growth.

Source: IFO

Employment barometers in the IFO survey have weakened in recent months, with the July manufacturing print of -6.2 a 30-month low, and services at 5.4 a 27-month-low (albeit still in expansionary territory).

• However, nominal wages - which tend to track the employment barometer reasonably well (see chart) - have not followed suit and have pushed higher.
• This divergence can be seen in both manufacturing and service sectors, though the latter is the primary concern given the persistent above-zero prints in the IFO survey.
• In the ECB July meeting press conference, President Lagarde noted that the Governing Council was not yet worried about wage-price spiral dynamics in the Euro area.
• However, with real wages stuck in negative territory for almost 2-years (a Eurozone-wide phenomenon), the risk of second-round effects on inflation resulting from successful wage bargaining in coming months remains.
• The next round of German labour earnings data for Q2 is due 29 August, which will shed more light on whether wage growth follows the employment barometers and cools off, or if the divergence seen this year is set to continue.

While it seems too early to start rolling Sep'23 quarterly expiration futures to Dec'23 (September futures don't expire until late next month, details below), the "First Notice" date, when the current lead quarterly passes the honor to the following quarterly, is only two weeks away on August 31. Tsy quarterly futures roll volume from Sep'23 to Dec'23 underway. Current markets:

• TUU/TUZ 7,500 from -14.62 to -14.00, -14.25 last, <2% complete
• FVU/FVZ 22,300 from -17.0 to -16.25, -16.5 last, appr 3% complete
• TYU/TYZ 17,800 from -15.5.00 to -14.75, -15.25 last, appr 2% complete
• UXYU/UXYZ <100 from -19.0 to -18.0, -18.75 last, appr 1% complete
• USU/USZ 5,600 from -6.75 to -6.5, -6.75 last, appr 3% complete
• WNU/WNZ 9,800 from -15.0 to -14.75, -14.75 last, appr 6% complete
• Reminder, September futures won't expire until next month: 10s, 30s and Ultras on September 20, September 29 for 2s and 5s.