Key Takeaways
- US Nonfarm Payrolls significantly underperformed expectations in August, increasing by only 22,000 against a forecast of 75,000, indicating a pronounced cooling in the labor market.
- The soft US jobs data has dramatically increased market bets on Federal Reserve rate cuts, with short-term interest-rate futures reflecting a 97% probability of a September reduction.
- Canada's employment figures also disappointed sharply, with a loss of 65,500 jobs in August, pushing the likelihood of a Bank of Canada September rate cut to 90%.
- In response, US Treasury yields fell and the 2/10 yield curve steepened to 60.4 basis points, while S&P 500 futures (SPX) saw a modest rise of 0.3%.
- The UK 10-year gilt yield eased to 4.70%, reflecting broader bond market movements.
The latest August jobs report from the U.S. Bureau of Labor Statistics revealed a significantly weaker labor market than anticipated, with nonfarm payrolls rising by a mere 22,000. This figure sharply missed economists' expectations of 75,000 new jobs and was a notable decline from July's revised 73,000 gain, signaling a pronounced slowdown in hiring. Private payrolls also showed weakness, increasing by just 38,000 compared to an estimated 75,000. The unemployment rate, however, rose as expected to 4.3% from 4.2% in July.
This unexpectedly soft jobs data has intensified market speculation for more aggressive monetary easing from the Federal Reserve. Traders are now pricing in a 97% chance of a 25-basis-point rate cut at the upcoming September Federal Open Market Committee (FOMC) meeting, a significant increase from 75% before the release of the US jobs data. Average hourly earnings grew by 0.3% month-over-month, remaining flat with the previous period, while the year-over-year increase slowed slightly to 3.7% from 3.9%. The labor force participation rate saw a marginal uptick to 62.3%.
The impact was immediately felt across financial markets. US Treasury yields rose following the soft report, with the 10-year Treasury yield easing to 4.154% and the 2-year yield falling to 3.53%. The US Treasury 2/10 yield curve steepened to 60.4 basis points as investors reacted to the shifting rate cut expectations. Meanwhile, S&P 500 futures (SPX) saw a modest gain of 0.3% after an initial brief dip, reflecting investor optimism for potential rate cuts to stimulate the economy.
Across the border, Canada's labor market also delivered a significant disappointment in August. The economy experienced a substantial loss of 65,500 jobs, a stark contrast to the estimated 5,000 gain. This pushed the Canadian unemployment rate up to 7.1%, exceeding the 7.0% forecast and rising from 6.9% in July. In response to this weakness, the Canadian swap market is now indicating a 90% chance of a September rate cut from the Bank of Canada, a sharp increase from 75% prior to the release of the US jobs data.
In the United Kingdom, the 10-year gilt yield eased to 4.70% on September 5, marking a 0.03 percentage point decrease from the previous session. This movement aligns with broader trends in global bond markets reacting to the fresh economic data and central bank expectations.
Ed Liston is a senior contributing editor at TheStockMarketWatch.com. An active market watcher and investor, Ed guides an independent team of experienced analysts and writes for multiple stock trader publications.