U.S. Nonfarm Payrolls were 114k for July, well below the 175k estimate. This is one of the lowest jobs gains tallies in over three years, second only to April’s 108k. To compound things, June’s total was revised down to 179k from 206k and the Unemployment Rate jumped to 4.3% (4.1% estimate and previous).
Private Payrolls, Average Hourly Earnings (both monthly and yearly), and Average Weekly Hours were all lower than forecast. The single positive category was the Change in Manufacturing Payrolls, which gained 1k vs. a -5k estimate.
A nosediving labor market underscores expectations of a rate cut at the FOMC’s September meeting, and with an added sense of urgency. Today’s report begs the question of whether the Fed has waited too long to begin the rate cut cycle, increasing the possibility of the U.S. economy going from soft landing to full on recession.
Fed Funds Futures now imply a September cut of 42 basis points. This suggests that traders are convinced the Fed will need to play catch up by cutting rates sooner and more aggressively. The November meeting is pricing a 37bps cut, and the December meeting is pricing a 30bps cut.
U.S. Treasury yields are sharply lower, led by a 0.248 decline in the 2-year tenor. The benchmark 10-year tenor is at 3.810%, its lowest point of the year.
The dollar is lower against all G10 pairs, led by a 1.69% decline against SEK, -1.65% vs. JPY, -1.18% vs. EUR and -0.76% vs. GBP. One bright spot for the dollar is a 0.76% gain vs. MXN. USDMXN reached an intraday high of 19.2070, its highest since March of last year.
Equities are sharply lower. The Nasdaq 100 is -3.07% and S&P 500 -2.37%.
