The August US labour market report painted something of a mixed picture of the employment situation.
Headline nonfarm payrolls marginally missed expectations, at +142k last month, though such a print was well within the forecast range, even if a 2-month net revision of -86k is hardly anything to be pleased about.
On a more positive note, unemployment fell to 4.2%, as a degree of temporary weather-related weakness in July was unwound, while participation remained unchanged at 62.7%, just shy of cycle highs. Earnings, finally, were a touch hotter than expected, having risen by 0.4% MoM, bringing the annual rate 0.2pp higher to 3.8%.
All of this does little to clear-up the debate over the September Fed meeting. Doves will point to a cooling pace of headline payrolls growth as potential reasoning for a larger 50bp cut. Hawks, meanwhile, will reasonably point towards the lack of further cooling compared to the July report, and hot-ish earnings growth, as reasons to kick-off the normalisation cycle with a more modest 25bp move. My base case remains for the latter, particularly given the risk the Fed run of sparking a market panic were a larger cut to be delivered.
Immediate market reaction to the jobs report has been choppy, though ultimately seen Treasuries gain ground, led by the front-end of the curve, as a marginal dovish repricing takes place, with the USD OIS curve now discounting around 6bp more easing (112bp total) by year-end than before the jobs numbers crossed news wires.
Stocks have ticked higher, while the dollar softens, as the DXY surrenders the 101 figure. Remarks from Fed ‘big-hitters’ Williams and Waller will now be extremely closely watched this afternoon, for any explicit hints on the policy outlook.
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