#NFPShockSpikesRateCutOdds

Soft July Jobs Data Causes a Drop in Rate-Hike Chances

July nonfarm payrolls were much worse than expected dropping by 23,000. Earlier months were adjusted down by a total of 103,000 jobs. Labor-force participation fell to a level not seen since 1976. The immediate reaction in the market was clear: the chances of a rate hike in September dropped from 58% to 44%. Gold jumped 3% to $4,368.

The Labor-Market Signal

A bad payroll number combined with downward changes in earlier data changes the recent story of strength. Participation at a low level adds to the idea that the job market is losing strength. The data are not yet a sign of a recession but they are weak enough to make people rethink how much more the Federal Reserve needs to raise rates.

Market Reaction Right Away

Rate futures changed quickly. The chance of a September hike that was to 58% dropped to 44%. Gold, which does well when interest rate expectations go down went up 3%. Reached $4,368. This move shows the reaction: weaker jobs → lower chances of more rate hikes → support for non-yielding safe investments.

Next Important Data

Now the focus is on the CPI release on Wednesday. If inflation also slows, the idea of a shift that started with the jobs report will get stronger. If inflation goes up again the relief in rate-hike chances and the rise in gold might go away. The CPI number will therefore be the test of whether the market’s current view of the NFP's correct or not.

Final Thoughts

The July employment report and the changes to numbers have led to a clear drop in the chances of a near-term rate hike and a strong reaction in gold. Participation at 1976 lows and the 23,000-job drop make the job market look weaker than before. The CPI on Wednesday will decide whether this change in expectations continues or stops. Until then the main idea is that the chance of a September hike is lower and the market is still adjusting to the jobs data.

This is my take, on the numbers that were reported. The reaction that happened the same day. It is not a forecast or a suggestion.

‍#Gold $NAS100 $US500 $USIDX