Major employment report weaker than expected

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Published Date 8/2/2024

Before 8:30 am ET this morning the 10 year note traded -4 bps at 3.94%. At 8:30 am the July employment hit, a huge surprise.

The unemployment rate thought to be unchanged from June at 4.1% increased to 4.3%. Payrolls (NFP) expected at 180K from 206K, increased just 114K. Private jobs in June 136K, the estimate for July 155k, as reported +97K. July average hourly earnings +0.2% against +0.3%, year/year average earnings declined from 3.8% in June (revised from 3.9%) fell to 3.6%. The labor participation rate did increase to 62.7% from 62.6. The unemployment rate rose to the highest level in nearly three years.

A massive change in rates: within 15 minutes the 2 year note yield declined 30 bps to 3.86%, the 10 year note declined 17 bps to 3.81%. MBS prices +42 bps from yesterday. After the knee jerk reactions rates edged higher from the lows on the release. By 9 am MBS price clawed back from +42 bps to +21 bps, the 10 at 9 am 3.86%, the 2 year 3.98%.

Is the Fed behind the curve in lowering rates with the US economy slowing quickly? That discussion will dominate the session. Was the July employment collapse a one off, or the beginning of the trend to recession? There has been some talk recently that the Fed would lower the FF rate three times this year, at each of the FOMC meetings left this year? With the report this morning a 25 bp cut at the September FOMC meeting will still be restrictive. Investors and money managers, economists and analysts, and traders; will argue for the Fed to lower the FF rate by 50 bps at the next meeting. Until now Jerome Powell’s strategy has been to take it slow, always wanting more data.

At 9:30 am the DJIA opened -345, NASDAQ -419, S&P -83. The 10 year note at 9:30 am 3.86% -12 bps. FNMA 6.0 30 year coupon at 9:30 am +25 bps from yesterday’s close and +27 bps from 9:30 am yesterday.

June factory orders -3.3% against -3.0% expected.

Source: TBWS

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