Week in Review: Soft US Jobs Data Boosts Fed Cut Bets

In response to the jobs report, futures markets tracked by the CME FedWatch tool now reflect a 100% probability of at least a 25-basis-point (0.25 percentage point) rate cut at the Fed’s next meeting. The likelihood of a 50-basis-point cut increased from 0% to roughly 10% following the data. Meanwhile, the yield on the 10-year US Treasury note fell sharply to 4.07%, its lowest level in five months, as investors sought the relative safety of government bonds amid concerns over a weakening labour market.

The catalyst for the sell-off was the release of the Labor Department’s nonfarm payrolls report, which showed US employers added just 22,000 jobs in August. This was a sharp decline from July’s revised figure of 79,000 and well below market expectations of approximately 77,000. Additionally, June’s payroll number was revised downward from a gain of 14,000 to a loss of 13,000, marking the first negative monthly reading since December 2020. The unemployment rate for August also ticked up to 4.3%, the highest level since 2021.

Looking to the week ahead, key economic releases will include the US inflation data for August, with headline consumer inflation expected to rise to 2.9%, the highest level since January. The core inflation rate is expected to remain above 3%, signalling ongoing price pressures. In Europe, all eyes will be on the European Central Bank’s upcoming monetary policy decision. The ECB is widely expected to keep borrowing costs unchanged for a second consecutive meeting, with the deposit rate remaining at 2%, as inflation remains near target and economic growth shows signs of steadying.

Market Moves of the Week

On the Johannesburg Stock Exchange, the JSE All Share Index ended the week 0.3% softer, the resource sector continued its positive performance, buoyed by increases in the gold price, while the other major sectors were down on the week. Meanwhile, South Africa’s benchmark 2035 government bond saw a gain in early trading, with the yield falling by 8 basis points to end the week at 9.565%.

Chart of the Week:

Credits: Strategiq