Bonds Climb As Jobs Cracks Keep Fed Cuts in Play: Markets Wrap

Bonds climb as jobs cracks keep Fed cuts in play. Wall Street traders gearing up for Friday’s jobs report got a trio of data that only reinforced the view of a cooling labor market, keeping bets on Federal Reserve rate cuts alive and driving bond yields down.

The latest readings on hiring and unemployment claims came on the eve of what economists expect to mark the weakest stretch of US job growth since the pandemic. Treasuries held gains after data showed solid services data. Equities and the dollar edged up.

“Even the most easing-skeptical officials should concede increasing risks of labor market weakness,” said Will Compernolle at FHN Financial. “If this momentum continues into upcoming months, firms would soon be shedding workers faster than hiring them to the point of negative job growth.”

Money markets priced in a roughly 90% chance of a Fed cut this month and at least two reductions by year-end.

Applications for US unemployment benefits rose to the highest since June. Private-sector payrolls increased by 54,000, according to ADP Research data, trailing estimates. Hiring plans fell to the weakest level for any August on record, according to outplacement firm Challenger, Gray & Christmas.

Employers in the US showed little enthusiasm to take on workers during August, and the unemployment rate probably ticked up to an almost four-year high.

Economists project about 75,000 jobs were added, based on the median of a Bloomberg survey, while the jobless rate is seen at 4.3%. Four straight months of sub-100,000 payrolls growth would mark the weakest such stretch since the onset of the pandemic in 2020.

Meantime, Stephen Miran, President Donald Trump’s pick to be Fed governor, pledged to preserve the independence of the central bank during his testimony before the Senate Banking Committee.

“The Federal Reserve’s free pass on the labor market has ended,” said Jamie Cox at Harris Financial Group. “You can expect the Fed to tilt its balance of risks to cut rates in September.”

Tomorrow’s jobs report will be the deciding factor, but so far this week the data is confirming a slowdown in the labor market, according to Chris Larkin at E*Trade from Morgan Stanley.

“In the short term, markets may embrace that data because it should increase the odds of Fed rate cuts,” he said. “But if the numbers deteriorate too much, it could raise concerns about the health of the economy.”

The silver-lining is the weaker the jobs data the more cover there is for stimulative interest rate cuts that are on the horizon, according to Eric Teal at Comerica Wealth Management.

“The boost in the latter half of this year should come from easier monetary policy and stimulative fiscal policies to avoid further economic deterioration,” he said.

Separate data Thursday showed activity at US service providers expanded in August at the fastest pace in six months on the sharpest acceleration in orders in nearly a year.

The solid advance in those demand indicators suggests the largest part of the economy is gaining some traction after five straight months of sluggishness. Twelve services industries expanded last month, led by information, wholesale trade and arts and entertainment. Activity contracted in four industries.

“Overall, the data showed a solid rebound in business activity among service providers despite there being some pockets of weakness within the details of the report,” said Vail Hartman at BMO Capital Markets. “From here, the path has been cleared to set up for tomorrow’s payrolls report.”

Meantime, the US Justice Department opened a criminal investigation into whether Fed Governor Lisa Cook committed mortgage fraud — ratcheting up pressure as President Donald Trump seeks to oust her from the central bank.

Federal prosecutors have issued subpoenas seeking information related to allegations that Cook misrepresented information on mortgage applications, according to people familiar with the matter, who asked not to be identified discussing the ongoing probe.

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