US Labor Market Slowdown Fuels Expectations of Interest Rate Cut

The New York foreign exchange market saw the yen rise by more than 1% against the dollar, briefly reaching 143.76 yen per dollar, as traders increasingly expect a major interest rate cut by the Federal Reserve in response to new economic indicators showing a slowdown in the U.S. labor market.

The number of U.S. job openings fell to 7.673 million in July, down from the median forecast of 8.1 million among economists surveyed by Bloomberg. The yen was trading at the high 144 yen level against the dollar before the data was released.

Market Expectations

Monetary policymakers have made it clear they would not welcome a further slowdown in the labor market, and the Federal Open Market Committee is widely expected to cut interest rates when it meets this month.

“The probability of a 50 basis point cut in September has risen to about 50 percent, up from 25-30 percent earlier this week,” said Win Thin, global head of currency strategy at Brown Brothers Harriman.

Government Bonds

U.S. Treasury yields immediately fell in response to the data, with the 2-year yield briefly falling below the 10-year yield. This marks only the second time the yield curve has inverted since 2022.

Expectations of a major US interest rate cut grow stronger in response to weak job data – inverted yield curve temporarily disappears.

Stock Market

The S&P 500 index fell, with semiconductor giant Nvidia continuing to fall. It was the largest two-day drop since October 2022.

Among other individual stocks, U.S. Steel fell sharply, while U.S. telecommunications giant Verizon Communications Inc. also fell.

Crude Oil

Oil futures slumped to their lowest in nearly a year as worries about fading demand persisted despite the possibility that OPEC+, the group made up of the Organization of the Petroleum Exporting Countries and non-OPEC producers, might delay production increases.

The international benchmark Brent crude closed at its lowest since June 2023. OPEC+ is close to agreeing to delay a planned October supply increase, the representatives said, asking not to be identified discussing private information.

Gold

Spot gold prices were reversing losses as U.S. jobs data showed growing signs of a slowdown in the labor market, paving the way for the Federal Reserve to cut interest rates soon.

After the jobs report, Treasury yields and the dollar fell sharply, while gold reversed its earlier decline and rose 0.3% at one point. The interest rate swaps market is currently pricing in a one-point rate cut this year.

Traders are now focused on the U.S. employment report for August, due to be released on the 6th. Economists surveyed by Bloomberg expect nonfarm payrolls to rise by about 165,000 from the previous month. Any signs of a weakening in the labor sector could support a more aggressive shift in monetary policy from the Federal Reserve, which could be positive for gold.

As of 2:52 pm New York time, the spot price of gold was up 98 cents (less than 0.1%) from the previous day to $2,493.89 an ounce. The December gold futures contract on the New York Mercantile Exchange (COMEX) closed at just $2,526, up $3 (0.1%).

Market Data

Last exchange rate change from previous trading day

• Bloomberg Dollar Index: 1232.99 -4.18 -0.34%
• Dollar/Yen: ¥143.79 -¥1.69 -1.16%
• Euro/Dollar: $1.1080 $0.0037 0.34%

Latest government bond price change from previous trading day (bp)

• US 30-year bond yield: 4.06%-6.2-1.49%
• US 10-year bond yield: 3.76%-7.4-1.93%
• US 2-year bond yield: 3.76%-10.3-2.67%

Stock closing price change from previous trading day

• S&P 500: 5520.07 -8.86 -0.16%
• Dow Jones Industrial Average: 40974.9738.040.09%
• Nasdaq Composite: 17084.30 -52.00 -0.30%

Oil futures

• London ICE’s November Brent crude contract: $72.70 a barrel
• New York Mercantile Exchange’s (NYMEX) October West Texas Intermediate (WTI) futures: $69.20