Change in Nonfarm Payrolls for August were 142k (165k est) and July payrolls were revised down from 114k to 89k. Change in Private Payrolls was 118k, below the 140k estimate, and last month was also revised down, going from 97k to 74k.
The Unemployment Rate was reported 4.2%, consistent with estimates and below July’s 4.3%.
The downward revisions received the most attention and added to speculation of a 50 basis-point cut at the FOMC’s policy meeting on September 18th. Fed Funds Futures currently imply a 147% probability of a 25 basis-point cut, meaning all traders expect at least a 25bp and half expecting a 50bp cut. Additionally, 1.15% of cuts are implied by year-end and 2.50% of cuts by March of 2026. Citi traders released their forecast of 1.50% of cuts before year-end.
Accelerating labor weakness could jeopardize the Fed’s goal of a soft landing, and the history of Fed Chairman Powell’s Fed tenure is still being written. What we do know so far is that Powell’s data-driven Fed missed the post-Covid spike in inflation, patiently looking past hearsay evidence for the official reports. Someone commented today that Chairman Powell doesn’t take baby steps when it comes to rate policy. This is true if one thinks of Fed rate policy as a lagging indicator… by the time rates start changing a crisis is already underway.
The dollar dropped immediately following the Nonfarm data, leading to a 0.52% decline in the dollar index. The dollar has since recovered to a 0.14% gain and is higher vs. 9/10 of the G10. The dollar’s biggest gain vs. the majors is +0.54% vs. MXN, followed closely by 0.43% vs. AUD.
U.S. Treasury yields have stabilized, all tenors trading slightly lower than yesterday’s close. And the 2-year yield is still lower than the 10-year. Oil traded as low as $68.91/barrel today, near the 2024 low at $69.75.
