- US job vacancies dropped to a 10-month low in July.
- Private firms hired 54,000 new workers in August, well below the forecast of 73,000.
- Non-farm payroll data on Friday showed an addition of only 22,000 jobs in August, missing the forecast of 75,000.
Interest futures rallied on Friday after US data revealed a smaller-than-expected increase in employment in August. The downbeat jobs data led to a surge in expectations for a Fed rate cut and a decline in Treasury yields.
Interest futures have had a bullish week marked by a gradual increase in Fed rate cut expectations. Since the week began, traders have absorbed a set of downbeat employment figures, which have solidified bets for a September rate cut. At the same time, market participants are getting used to the more dovish tone among Fed policymakers.
The first major report revealed that US job vacancies dropped to a 10-month low in July. The US reported 7.18 million openings, down from 7.36 million the previous month. Meanwhile, economists had expected 7.38 million openings.
US private jobs (Source: ADP Research)
The following major reports were released on Thursday, showing weak private employment and higher unemployment rates. Private firms hired 54,000 new workers in August, well below the forecast of 73,000. Meanwhile, unemployment claims rose to 237,000 compared to the estimates of 230,000.
Finally, non-farm payroll data on Friday showed an addition of only 22,000 jobs in August, missing the forecast of 75,000. Meanwhile, the unemployment rate increased from 4.2% to 4.3% as expected. All these reports have painted a picture of a rapidly slowing labor market. This has increased pressure on the Fed to lower borrowing costs.
By Thursday, market participants were almost fully pricing a 25-bps rate cut in September. Friday’s report will likely revive bets for a 50-bps rate cut. As rate cut expectations rise, Treasury yields drop, and interest futures climb.
Furthermore, recent comments from the Fed have shown that policymakers are more willing to consider rate cuts. The strongest signal came from Christopher Waller, who said he expects a rate cut in September. He also said there may be more such moves in the coming months.
The next major economic report will show the state of inflation in the economy. The most recent report revealed that Trump’s tariffs had had little impact on price pressures. Therefore, nothing was stopping the Fed from lowering borrowing costs. Another soft report will strengthen the case for a more dovish Fed, boosting interest futures.
