Forexlive Americas FX information wrap 2 Aug: Bond market cuts fee for Fed after weak jobs knowledge

Coming off some eye-opening earnings/revenue numbers from Amazon after the close (lower revenues and rumblings of a slower consumer), and a day yesterday where there was a string of bad news, the markets got another dose of “weak” today in the US jobs report.

The July 2024 US non-farm payrolls report revealed an increase of only 114,000 jobs, significantly below the expected 175,000. The previous month’s figure was revised down from 206,000 to 179,000. The unemployment rate rose to 4.3% from the expected 4.1%, with the unrounded rate at 4.252%. The labor force participation rate slightly increased to 62.7%, and the U6 underemployment rate rose to 7.8% from 7.4%. Average hourly earnings grew by a lower 0.2% month-over-month, falling short of the 0.3% expectation, and increased by 3.6% year-over-year. Average weekly hours decreased to 34.2 from the anticipated 34.3. Private payrolls saw a rise of 97,000, below the expected 148,000, while manufacturing payrolls grew by 1,000, against the forecasted decline of 1,000. The household survey reported an increase of 67,000 jobs, and government jobs rose by 17,000.

Sector-wise, health care continued to add jobs (+55,000), while the information sector lost -20,000 jobs. Government employment showed little change after previous significant gains. Despite Hurricane Beryl, there was no discernible effect on national employment and unemployment data, though temporary layoffs increased by 249,000 to 1.1 million. This could indicate that the rise in unemployment might not be as severe as it appears.

The weaker data, gave the bond traders the go-ahead to do what the Fed did not do this week when the chose to keep rates unchanged (but left the door open for a September cut)

Following the report,

• US 2-year yields fell from 4.11% to a low of 3.845%. The current yield is 3.881%, down -28.3 basis points. For the week the 2 year is down -50 basis points. That was the largest 1-week decline since March 2023
• US 10 year yield fell from 3.941% % to a low intraday of 3.787%. The current yield is at 3.797%. For the week, the 10 year yield is down -39.4 basis points. That is the largest 1-week decline since July 2011 when yields fell -54 basis points.
• US 30-year yield fell from 4.24% to a low of 4.10%. For the week, the yield is down -33.9 basis points for the week.

The 10 year yield is now down -95.2 basis points from its high during the week of April 22. US mortgage rates, reached a peak in April at 7.22%. The rate on August 1 was 6.73% down -49 basis points. What will it be after the -18 basis point decline in the 10 year yield today?

The debt market is doing the Fed’s work for them, what has the market now priced in?

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

Meanwhile, not only is the job growth slowing but the stock market decline is taking money out of consumers pockets. The US major indices had another rough day with the:

• Dow Industrial Average falling -1.51%. For the week the index fell -2.10%.
• S&P index-1.84%, and for the week -2.06%
• NASDAQ index fell -2.43%, and for the week -3.35%. The last three weeks have seen the Nozick index for -3.65% -2.08%, and -3.35%.
• Small-cap Russell 2000 fell -3.52% in -6.67% for the week

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

In the forex market today, the USD is ending as the weakest of the major currencies with the USDJPY falling -1.88% and the USDCHF falling 1.58%. The USD also lost -1.12% vs the EUR and -0.55% vs the GBP.

The JPY and the CHF were the strongest of the major currencies as the flow of funds moved into those “safe haven” currencies.