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US Treasuries rose and global stocks remained under pressure on Friday after weaker than forecast payrolls data raised investors’ expectations that the Federal Reserve will aggressively cut interest rates.
The yield on the interest rate-sensitive two-year Treasury bond fell 0.08 percentage points to 3.67 per cent, while the yield on the benchmark 10-year was down 0.04 percentage points to 3.69 per cent.
Government debt rallied 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 142,00 jobs in August, below a consensus of analysts’ forecasts of 160,000 jobs, 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, was down 0.4 per cent. The yen rose as much as 0.6 per cent to $142.5, its highest level since January.
Futures also indicated a weaker start in New York, with contracts tracking both the S&P 500 and Nasdaq 100 down 0.2 per cent.
Traders increased their bets that the Fed will make aggressive cuts in the coming months after Friday’s data. Swaps markets priced in a more than 50 per cent chance of a half point cut at the Fed’s meeting later this month, having prior to the data priced in a roughly 40 per cent chance. They are also pricing in four and a half quarter-point cuts by the end of the year.
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 fell in morning trade and, despite making back some ground, remained in the red after the jobs report. The benchmark Stoxx Europe 600 was 0.1 per cent lower, led by declines for energy stocks and financials. Germany’s Dax was down 0.4 per cent while the Cac 40 in Paris fell 0.1 per cent although the FTSE 100 in London was flat.
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.
