Hiring fell short of forecasts in August after downward revision to the prior two months, fueling the ongoing debate over how much the Federal Reserve could lower interest rates.
Nonfarm payrolls rose by 142,000 in August, leaving the three-month average at the lowest since mid-2020. The unemployment rate edged down to 4.2%, the first decline in five months.
Labor costs edged higher, nominally exceeding forecasts.
Wall Street increased the odds to about 50% that the Federal Reserve will lower rates by 50 bps next week, however many market observers believe this is a “long shot” and is not necessarily what the Fed will do. One observer commented that Wall Street is trying “to jawbone” the Fed into greater action.
Swaps are now suggesting a total of 115 bps of reductions in 2024, up from around 108 bps before the data was released.
At one point Friday, the markets believed that a half point reduction was indeed plausible following Fed Governor Christopher Waller’s comment that he is “open minded” about the potential for a bigger rate cut but this optimism was short lived.
Equities led by the mega caps fell further following the rethinking of Waller’s remarks. In theory, this “rethinking” would be good news for the markets as it would suggest that the Central Bank is not in a rush to lower rates. That growth is not slowing too dramatically.
Writing the incredibly obvious, the markets are myopically focused upon how much the Fed will ease and how fast the economy is slowing, an environment that could dramatically increase volatility as the interpretations of the environment could change at moment’s notice.
What will happen this week? Bloomberg writes that last week equities had the worst weekly selloff since Mach 2023.
NVDA wiped out more than $400 billion in value this week and over a fifth of its value or about $620 billion in two weeks. To place this decline into perspective, NVDA declined in value the past two weeks by more than what JP Morgan is worth and broaching the capitalization of Walmart.
Will the markets focus on this week’s release of various inflation statistics?
Speaking of which, the economic calendar is comprised of several top-tier inflation statistics including the PPI, CPI, import and export prices. Also released is a sentiment survey and ancillary wage data.
Last night the foreign markets were mixed. London was up 0.76%, Paris up 0.84% and Frankfurt up 0.75%. China was down 1.06%, Japan down 0.48% and Hang Seng down 1.42%.
Futures are up 0.75% as some believe the markets are oversold. The NASDAQ had its worst week since 2022 and as mentioned, the S & P posted its worst weekly performance since March 2023. The 10-year is off 9/32 to yield 3.75%.
