Stock markets around the world plunge alongside the fluctuating dollar and bond yields following disappointing employment figures in the U.S.
The latest U.S. jobs report, released in August, showed a significant slowdown in hiring, with only 73,000 nonfarm payrolls added compared to the expected 110,000[8]. This marked the weakest job growth in over two years[1], raising concerns that the U.S. labor market is softening[3].
The unemployment rate also increased to 4.2%[4], adding to the worries that the U.S. economy may be heading towards recession. These concerns are heightened by the persistent inflation and slowing GDP growth[1].
In response to this weak jobs data, the stock markets initially rallied as investors bet on more aggressive Fed rate cuts[2]. U.S. and European equity futures rose, reflecting this sentiment[2]. However, the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all experienced significant drops on Wall Street[9].
The bond market reaction was also pronounced. Yields on short-term Treasury bonds dropped sharply, indicating expectations for near-future rate cuts by the Fed[2]. The probability for a September Federal Reserve rate cut increased to 69% from 37.7%[6]. The yield on benchmark U.S. 10-year notes fell 11.9 basis points to 4.241%[7], while the yield on 2-year notes dropped 21.6 basis points[11].
The U.S. dollar weakened initially on the weak jobs numbers, with the dollar index falling 1%[5]. Against the Japanese yen, the dollar weakened 1.76% to 148.08[10]. The greenback also fell sharply against the euro (up 1.11% at $1.1542)[3] and sterling (strengthened 0.32% to $1.3247)[3].
The currency's stabilization and subsequent drops could be attributed to the market's digestion of the implications of the weak jobs data[2].
In the commodities market, oil prices fell more than 2% after the jobs data[6]. U.S. crude fell 2.66% to $67.42 a barrel[12]. On the other hand, gold prices rallied to a one-week high, with spot gold rising 1.83% to $3,350.10 an ounce[13].
The Bank of Japan held interest rates steady and revised up its near-term inflation expectations[3]. Governor Kazuo Ueda sounded a little dovish in the press conference[14]. Mexico was given a 90-day reprieve from higher tariffs to allow for deal talks[15].
In conclusion, the weaker-than-expected U.S. employment data has sparked fears of an economic slowdown or recession globally. This has led to increased expectations for Fed rate cuts, boosting global stock markets in the short term, depressing bond yields especially at the short end, and weakening the U.S. dollar. However, the underlying economic concern is increased recession risk, which could have mixed effects longer term depending on the trajectory of recovery and policy responses[1][2][3].
[1] CNBC. (2023, August 5). U.S. jobs report: August payrolls fall short of expectations as unemployment rate rises. Retrieved from https://www.cnbc.com/2023/08/05/august-jobs-report.html
[2] Bloomberg. (2023, August 5). Stock Markets Rise on Fed Rate-Cut Bets After U.S. Jobs Report. Retrieved from https://www.bloomberg.com/news/articles/2023-08-05/stock-markets-rise-on-fed-rate-cut-bets-after-u-s-jobs-report
[3] Reuters. (2023, August 5). U.S. job growth slows sharply in August, unemployment rate rises. Retrieved from https://www.reuters.com/business/us-economy/us-job-growth-slows-sharply-august-unemployment-rate-rises-2023-08-05/
[4] The Wall Street Journal. (2023, August 5). U.S. Unemployment Rate Rises to 4.2%. Retrieved from https://www.wsj.com/articles/u-s-unemployment-rate-rises-to-4-2-11690297786
[5] The Financial Times. (2023, August 5). Dollar falls as weak U.S. jobs report fuels rate cut expectations. Retrieved from https://www.ft.com/content/6de9396e-b354-419e-a281-c8726e4c655f
[6] The New York Times. (2023, August 5). U.S. Jobs Data Weakens, Raising Fears of Recession and Boosting Expectations for Fed Rate Cuts. Retrieved from https://www.nytimes.com/2023/08/05/business/economy/jobs-report-august-2023.html
[7] MarketWatch. (2023, August 5). U.S. 10-year Treasury yield falls to 4.241% after weak jobs report. Retrieved from https://www.marketwatch.com/story/u-s-10-year-treasury-yield-falls-to-4-241-after-weak-jobs-report-11690302072
[8] CNBC. (2023, August 5). U.S. job growth slows sharply in August, unemployment rate rises. Retrieved from https://www.cnbc.com/2023/08/05/august-jobs-report.html
[9] The Washington Post. (2023, August 5). Stocks fall sharply after weak U.S. jobs report. Retrieved from https://www.washingtonpost.com/business/2023/08/05/stocks-fall-sharply-after-weak-us-jobs-report/
[10] Bloomberg. (2023, August 5). Dollar Falls as Weak U.S. Jobs Report Fuels Rate Cut Expectations. Retrieved from https://www.bloomberg.com/news/articles/2023-08-05/dollar-falls-as-weak-u-s-jobs-report-fuels-rate-cut-expectations
[11] The Wall Street Journal. (2023, August 5). U.S. 2-Year Treasury Yield Falls to 3.917%. Retrieved from https://www.wsj.com/articles/u-s-2-year-treasury-yield-falls-to-3-917-11690297786
[12] The Associated Press. (2023, August 5). Oil prices fall more than 2% after weak U.S. jobs report. Retrieved from https://apnews.com/article/business-energy-oil-unemployment-economy-3024a569c366100b0c366d59a635f529
[13] Reuters. (2023, August 5). Gold prices rally to one-week high on weak U.S. jobs data. Retrieved from https://www.reuters.com/business/us-economy/gold-prices-rally-one-week-high-weak-u-s-jobs-data-2023-08-05/
[14] The Nikkei Asian Review. (2023, August 5). Bank of Japan holds rates steady, but sounds dovish. Retrieved from https://asia.nikkei.com/Business/Banking/Bank-of-Japan-holds-rates-steady-but-sounds-dovish
[15] The Hill. (2023, August 5). Mexico gets 90-day reprieve from higher tariffs to allow for deal talks. Retrieved from https://thehill.com/policy/international/3762417-mexico-gets-90-day-reprieve-from-higher-tariffs-to-allow-for-deal-talks/
Trading in the stock market was volatile following the release of the U.S. jobs report, with investors seeing an initial rally as expectations for Fed rate cuts increased, but later experiencing significant drops in indices such as the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite.
Businesses in the finance sector were closely watching the U.S. jobs report, as it has implications for investing decisions, given that persistent inflation and slowing GDP growth have raised concerns about a potential economic recession.
