Weaker Labour Market Data Sends Treasury Yields Lower

The US employment report for July was weaker than expected, with nonfarm payrolls falling by 23,000 against expectations of an increase of around 80,000. This was not just a disappointing headline number, but also evidence that the labour market has been weaker than previously reported.

The unemployment rate fell from 4.2% to 4.1%, but this decline can be attributed to a drop in labour force participation, which slipped to 61.4%. Wage growth also cooled, with average hourly earnings rising just 0.1% during July and 3.2% over the year.

Markets reacted quickly to the report, with investors welcoming weaker economic data as a sign of less restrictive monetary policy. The probability of a Federal Reserve rate increase in September fell from 54.7% to 44%. Treasury yields also declined, with the two-year yield falling towards 4.16% and the 10-year yield moving towards 4.60%.

Equity futures rose, with S&P 500 futures increasing by around 0.5% and Nasdaq 100 futures gaining more than 1%. Technology shares were also supported by strong company-specific earnings. Gold rallied further, as investors took advantage of the weaker dollar and lower inflation concerns.