Forexlive Americas FX news wrap 2 Aug: Bond market cuts rate for Fed after weak jobs data

After some amazing earnings/revenue numbers from Amazon after the shutdown (revenue declines and slower consumer concerns), and a day of bad news yesterday, markets got another dose of “weakness” today in the US jobs report.

The US nonfarm payrolls report for July 2024 showed a gain of just 114,000 jobs, well below the 175,000 expected. The previous month’s figure was revised down from 206,000 to 179,000. The unemployment rate rose to 4.3% from 4.1% expected, with an unrounded rate of 4.252%. The labor force participation rate edged up slightly to 62.7%, and the U6 labor shortage rate rose to 7.8% from 7.4%. Average hourly earnings grew by a smaller 0.2% month-over-month, missing expectations of 0.3%, and were up 3.6% year-over-year. Average weekly hours worked fell to 34.2 from 34.3 expected. Private sector payrolls rose by 97,000 jobs, less than the 148,000 expected, while manufacturing jobs rose by 1,000 jobs, versus the 1,000 expected decline. The household survey reported an increase of 67,000 jobs, while government payrolls rose by 17,000 jobs.

At the sector level, health care continued to add jobs (+55,000), while information technology lost -20,000 jobs. Government employment showed little change after earlier big gains. Despite Hurricane Beryl, there was no clear impact on national employment and unemployment data, although temporary layoffs increased by 249,000 to 1.1 million. This may suggest that the rise in unemployment may not be as sharp as it seems.

The weaker data gave bond traders the green light to do what the Fed didn’t do this week when it chose to keep interest rates unchanged (but left the door open for a cut in September).

Following the report,

• The yield on the 2-year US Treasury note fell from 4.11% to a low of 3.845%. The current yield is 3.881%, down -28.3 basis points. On the week, the 2-year yield fell by -50 basis points. This was the largest weekly decline since March 2023.
• The yield on the 10-year US Treasury note fell from 3.941% to a daily low of 3.787%. The current yield is 3.797%. For the week, the yield on the 10-year US Treasury note fell -39.4 basis points. This is the largest weekly decline since July 2011 when the yield fell -54 basis points.
• The yield on the 30-year US Treasury note fell from 4.24% to a low of 4.10%. Over the week, the yield fell by -33.9 basis points.

The 10-year yield is now -95.2 basis points below its high the week of April 22. U.S. mortgage rates peaked in April at 7.22%. The rate on August 1 was 6.73%, down -49 basis points. What will happen if the 10-year yield drops -18 basis points today?

The debt market is doing the Fed’s job for him, so what price has the market set now?

At the start of the day, there was a 30% chance of a 50 basis point cut at the September meeting. Now, the market is pricing in an 80% chance of a rate cut. The market is pricing in a 50 basis point cut by January 5, or 127 basis points. By June 2025, the market is pricing in an 8 basis point cut, or 242 basis points.

Meanwhile, not only has job growth slowed, but the stock market rout is taking money out of consumers’ pockets. Major U.S. indices had another tough day with:

• The Dow Jones Industrial Average fell -1.51%. For the week, the index fell -2.10%.
• S&P -1.84%, for the week -2.06%
• The Nasdaq fell -2.43%, and for the week -3.35%. The last three weeks saw the Nosiq decline by -3.65%, -2.08%, and -3.35%.
• The Russell 2000 Small Cap Index fell -3.52% last week, posting a loss of -6.67%.

Amazon shares fell -8.78%, Google fell -2.40%, Microsoft fell -2.07%, and Nvidia fell -1.78%, but Apple continued the trend with a 0.69% gain after better-than-expected earnings after yesterday’s close.

In today’s forex market, the US dollar ended the day as the weakest among the major currencies, with the USD/JPY pair down -1.88% and the USD/CHF pair down 1.58%. The US dollar also lost -1.12% against the euro and -0.55% against the British pound.

The Japanese yen and the Swiss franc were the strongest among the major currencies as money flowed into those currencies considered “safe havens”.