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Wall Street equities drifted and Treasury bonds softened as investors grappled with the implications of a much weaker than expected US jobs report for the world’s largest economy and central bank policy.
Employers in the world’s largest economy added 235,000 jobs in August, the government’s monthly non-farm payrolls survey showed, widely missing economists’ predictions for more than 728,000 new hires. Wages rose more than expected, however, while the participation rate was unchanged at 61.7 per cent.
Wall Street’s blue-chip S&P 500 share index, which hit a record high on Thursday, traded flat. The technology-focused Nasdaq Composite added 0.1 per cent, while Europe’s Stoxx 600 share index fell 0.5 per cent.
The yield on the 10-year US Treasury bond, which moves inversely to its price, rose by 0.03 percentage points to 1.32 per cent. The dollar index, which measures the US currency against six others, slipped 0.1 per cent lower.
Investors were steeled for the jobs report to provide a catalyst for a market correction or an extended rally after Fed chair Jay Powell signalled that the central bank would reduce its $120bn of monthly bond purchases this year, while emphasising the need for further progress in the pandemic-scarred labour market.
“We were all jumping in our seats waiting for this jobs data,” said Kasper Elmgreen, head of equities at fund manager Amundi. “With the Fed firmly focused on employment these next few months of jobs reports are going to be very important.”
After US consumer prices rose 5.4 per cent in the 12 months to July, Powell at last month’s Jackson Hole central bankers’ symposium acknowledged calls from some Fed officials to wind down stimulus spending to avoid further inflationary pressures and financial market bubbles. But the Fed chief also warned of the dangers of acting too quickly.
The weak jobs number “supports the Fed’s cautious approach”, said Guillaume Paillat, multi-asset portfolio manager at Aviva Investors. The central bank, he said, “can now sit back and wait for more data”.
Johanna Kyrklund, chief investment officer at Schroders, described the payrolls report as “disruptive” and “not the Goldilocks number many were expecting”, referring to an outcome that would have soothed fears about an economic slowdown and inflation.
“There are some pockets of the economy facing labour shortages at the same time as [economic] growth momentum is peaking,” Kyrklund said. After US GDP growth was also lower than economists’ forecasts in the second quarter of the year, the jobs data added to “a slightly stagflationary tilt”, she added.
Ahead of the payrolls release, investors were focused on whether the Fed would announce the start of tapering either at its monetary policy meeting this month or its next in November.
“We don’t think the report is weak enough for Fed officials to back away” from reducing stimulus, strategists at TD Securities said.
“But we believe it increases the probability of a formal announcement coming at the December rather than the November meeting.”
The euro was steady against the dollar, purchasing $1.1879. Sterling was also unchanged at $1.1386. Brent crude, the oil benchmark, was flat at $72.96 per barrel.