Weak Jobs Report Shifts Market Pricing Away From September Rate Hike

The US dollar has weakened and two-year yields have fallen after the release of a surprisingly weak July jobs report. James Knightley, ING's Chief International Economist, notes that market pricing has shifted away from a September Federal Reserve rate hike in response to the data. The report showed payrolls falling 23k while there were 103K downward revisions to the past two months' data, leaving the 3M average at 20,000.

The unemployment rate fell to 4.1% from 4.2%, but this was largely due to a drop in the participation rate, with unemployed people leaving the workforce entirely. Average hourly earnings growth slowed to just 3.2% year-on-year from 3.5%. Reaction has been significant, with 2Y yields down 8bp and the dollar softening.

In terms of jobs, ING suggests a rebound is possible for August, but the Fed's decision is more likely to come down to what happens on inflation. The upcoming data releases will be crucial for the Fed's decision, including another jobs report, two CPI releases, and the Jackson Hole Symposium.