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US stocks fell and Treasuries rallied on Friday after weaker than forecast payrolls data raised investors’ expectations that the Federal Reserve will aggressively cut interest rates.
In New York the S&P 500 lost 0.5 per cent and the Nasdaq Composite was 1 per cent weaker at the open. The Stoxx Europe 600 was down 0.1 per cent.
The yield on the interest rate-sensitive two-year Treasury bond fell 0.06 percentage points to 3.69 per cent, while the yield on the benchmark 10-year fell 0.03 percentage points to 3.7 per cent. Yields move inversely to prices.
Government debt had earlier rallied harder after August payrolls data came in weaker than expected, adding to investors’ concerns that the US economy is cooling faster than anticipated. US employers added 142,000 jobs in August, below a consensus of analysts’ forecasts of 160,000, although it was above the downwardly revised 89,000 jobs created in July.
The dollar index, which tracks the US currency against a basket of other currencies, also turned higher, up 0.2 per cent, having initially fallen after the data. The yen retreated, but remained up 0.2 per cent, after rising to $142.4, its highest level since January.
Traders increased their bets that the Fed will make aggressive cuts in the coming months after Friday’s data. Swaps markets are pricing in four-and-a-half quarter-point cuts by the end of the year, slightly more than prior to the data.
Fed chair Jay Powell said last month he was focused on the risks of a weaker labour market. He cautioned that the timing and pace of rate cuts was reliant on economic data.
Stock markets in Europe were also volatile after the jobs report. The Stoxx Europe 600 fell 0.1 per cent, as did the Cac 40 in Paris, while the FTSE 100 in London dropped 0.3 per cent and the Dax in Germany was down 0.4 per cent.
Japan’s Topix closed 0.9 per cent lower on Friday, while South Korea’s Kospi was down 1.2 per cent and China’s CSI 300 index fell 0.8 per cent.
“The risk appetite is rather concentrated in US data . . . given the sagginess of Chinese growth,” said Trinh Nguyen, senior economist for Emerging Asia at Natixis in Hong Kong.
“Markets will need reassurance of a not too slow US economy but at the same time weak enough for the Fed to not fear [an] inflation resurgence.”
Market sentiment weakened following disappointing data on Thursday from payroll processor ADP, which showed that US private employers had added the fewest number of jobs in more than three years in August.
Crude oil rose after Opec+ members agreed late on Thursday to delay planned production increases for at least two months, as prices slipped to their lowest levels of the year earlier in the week. Brent, the international benchmark, added 0.4 per cent to $72.97 while West Texas Intermediate, its US counterpart, rose 0.5 per cent, to $69.46.
