The US Department of Labor released its expected August employment report on Friday, which did not paint the clearest possible picture of the state of the economy.
About 45 minutes after the report was released, the US two-year bond market rate was down 3.9 basis points at 3.704 percent. The ten-year-old was looking for his direction. The dollar did the same in the foreign exchange market.
The stock market futures still showed a bearish opening on Wall Street during the day. After the numbers, Dow Jones and S&P 500 futures were looking for direction, but the Nasdaq was still flashing red.
Based on the interest rate market movements, investors seem to think that the probability of the Fed’s 0.50 percent interest rate cut increased.
The interest rate goes down, the price goes up
Market rate (current yield): Describes the annual yield. When the price of the loan paper falls, the market interest rate rises, when the price rises, the interest rate falls.
Bond: An investor buys a 1,000 euro bond with an annual coupon rate of 2.0 percent. The market interest rate is (20/1000) 2.0 percent.
The price goes up, the interest rate goes down: The investor sells the loan to another investor for 1100 euros, which means the price goes up. The return level of the new investor is no longer 2.0 percent, because he bought the loan at a higher price, but receives the same coupon rate. The new market rate is (20/1100) approximately 1.8 percent.
Central banks: If interest rates are high, governments and companies offer higher coupon rates. If interest rates fall, the coupon rates on older loans will appear more attractive than bonds issued with a lower coupon rate in the new interest rate environment, which is why investors may start buying them. Inflation expectations have a big impact on long-term loans.
The unemployment rate fell as predicted
The unemployment rate in the United States fell from 4.3 percent in July to 4.2 percent, like the information service Bloomberg’s the median of forecasts collected from economists expected.
Non-agricultural jobs were created less than the median forecast: 142,000, compared to expectations of 165,000. The figures for July were corrected to 89,000 from the previously reported 114,000.
In industry, jobs decreased by 24,000, while expectations were for a decrease of 2,000 jobs. The reading for July was corrected to 6,000 from the previous 1,000.
Figures that are difficult to interpret
Australian agency Pepperstonen strategy by Michael Brown according to the figures did not bring clarity to what the US central bank Fed will do on September 18.
You are married rescuer Valtteri Ahti and OP: n senior market economist Jari Hännikäinen state the same thing in their e-mail comments: the report left a divided picture of the labor market situation.
“142,000 new jobs were created, while the market expected 165,000 thousand. The unemployment rate improved again. The new jobs in the previous two reports were revised down by a total of 86,000. The report was on the weaker side, but not as weak as the market feared,” Ahti assessed the report.
According to Hännikäinen, the US labor market has undeniably cooled down during the summer. For example, the rate of job creation has moderated and the unemployment rate has increased.
“However, it is gratifying that the cooling of the labor market has, at least for now, occurred without an increase in layoffs,” Hännikäinen writes.
According to OP’s view, the employment report did not bring a final solution to the debate about the strength of the Fed’s September interest rate cut. Inflation readings will be published next week, which will give the Fed more to chew on before its interest rate meeting.
“We expect the Fed to start its rate cut cycle in September with a moderate move of 0.25 percentage points. An interest rate cut of 0.50 percentage points higher than this would send a message to the market about the central bank’s panic and strong concerns about the deterioration of the economic picture”, thinks Hännikäinen.