Market Data 
NEW YORK (Reuters) – STORY: U.S. employment increased less than expected in August, but a drop in the jobless rate to 4.2% suggested an orderly labor market slowdown continued and probably did not warrant a big interest rate cut from the Federal Reserve this month.
Nonfarm payrolls increased by 142,000 jobs last month after a downwardly revised 89,000 rise in July, the Labor Department’s Bureau of Labor Statistics said on Friday. Economists polled by Reuters had forecast payrolls increasing by 160,000 jobs after a previously reported 114,000 gain in July. Estimates ranged from 100,000 to 245,000 jobs.
Markets expectations for an upsized 50 basis point cut at the Federal Reserve’s mid-September meeting increased after the data.
MARKET REACTION:
STOCKS: E-minis erased early losses were up 5.25 points, or 0.1%.BONDS: he yield on benchmark U.S. 10-year notes edged down 0.4 basis point to 3.729%, the two-year note yield declined 4.4 basis points to 3.7082%.FOREX: The slipped 0.02% at 101.02.
COMMENTS:
GENNADIY GOLDBERG, HEAD OF US RATES STRATEGY, TD SECURITIES, NEW YORK
“I think the market’s really struggling with this one because it’s really in the middle of what could be used as a justification for either a 25 or 50 basis point rate cut.”
“It is consistent with a cut in September. The big question right now is just what’s the size? I think that’s what the markets are struggling with right now. Is this number weak enough for a 50 basis point rate cut in September? If you ascribe a more activist role to the Fed, then yes. If you think they are looking to be a little bit more measured, then no. But either way, I think the markets are going to be really balanced on a knife’s edge until the Fed shows support for either a 25 or a 50 one way or the other, and it’s really a tough decision.
“If you look at the payroll report net of revisions, it’s not great, especially net of the 86K revisions we saw for the last two months. So I do think that the unemployment rate is the key, but it’s not indicative of a very strong labor market. We do see the labor market really not just coming into balance, but really starting to cool off quite significantly, which could make the Fed quite nervous.”
LOU BASENESE, PRESIDENT AND CHIEF MARKET STRATEGIST, MDB CAPITAL, NEW YORK
“Everything is going down. You saw the lower-than-expected adds, you saw the last two months revised down, which means rates have to go down. Powell has got no choice. What is to be determined is if he timed it perfectly with rate cuts or if he was too late. I think so far, he’s OK. You don’t see massive layoffs yet. But if we start seeing layoffs in the next month or two, it’s going to suggest his timing was too late.
“Stocks are going to go down until next week when the Fed makes it definitive that they’re cutting, which could put pressure on them to do 50 basis points versus 25. I think 25 is all but guaranteed. But downwards stocks pressure heading into the meeting could change it to a 50-basis point cut.”
DREW MATUS, CHIEF MARKET STRATEGIST, METLIFE INVESTMENT MANAGEMENT, NEW JERSEY
“The payroll report suggests there is no reason for the Federal Reserve to rush. Payroll growth was OK, unemployment was effectively unchanged and hours worked increased, boosting weekly take home pay for workers. The labor market is slowing, but at a slow pace, allowing the Fed to move more deliberately in September. We continue to expect 75 basis points of easing this year as the Fed calibrates policy to manage the ongoing economic slowdown.”
BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN”I love all animals, so I mean this with all respect, but there was a dead cat bounce in August from the July softness. There were large back-month revisions. There was a large increase in part-time employment. There was a decrease in temporary help services again. The diffusion index for manufacturing fell. The headline number of 142,000 would ordinarily be considered healthy, but this labor market is held together by duct tape and string.
“Could the Fed cut by 50 bps? Yes, but will they? No. They probably want to start with 25 and retain the option to increase that to 50 rather than just jump right into a 50.”
ROBERT PAVLIK, SENIOR PORTFOLIO MANAGER, DAKOTA WEALTH, FAIRFIELD, CONNECTICUT
“Market is trying to digest the news just as much as anybody else. The initial pop in futures was based on the unemployment rate being pretty much right in line with expectations and down from the prior report, but when they get into the numbers, like the non-farm payroll itself, it shows that decline in the number of jobs being created versus expectations. And then the prior revisions lower, which is really sort of speaking to the economy slowing down.
“I don’t think it’s an indication that the economy is collapsing by any means, but it is an indication that it’s slowing. This means a 25-basis-point rate cut. I don’t think it speaks to needing anything more than that right yet.
“Those that might have been kind of hoping for a 50bps rate cut maybe disappointed, but they have to know that they better be careful what they wish for.”
KARL SCHAMOTTA, CHIEF MARKET STRATEGIST, CORPAY, TORONTO
“The U.S. economy looks more likely to gouge the runway in the months ahead, justifying an increasingly aggressive response from officials at the Federal Reserve.
“A half-point rate cut at the central bank’s September meeting remains unlikely, but today’s release provided clear evidence of a sharp deterioration in labor market fundamentals, and will bolster bets on at least one jumbo-sized rate cut in the coming months.
“The dollar is retreating, yields are coming down across the front end of the curve, and rate-sensitive asset classes are adding to recent gains.”
MICHAEL BROWN, SENIOR RESEARCH STRATEGIST, PEPPERSTONE, LONDON
“The August US labour market report painted something of a mixed picture of the employment situation… all of this does little to clear-up the debate over the September Fed meeting.”
“Doves will point to a cooling pace of headline payrolls growth as potential reasoning for a larger 50bp cut. Hawks, meanwhile, will reasonably point towards the lack of further cooling compared to the July report, and hot-ish earnings growth, as reasons to kick-off the normalization cycle with a more modest 25bp move. My base case remains for the latter, particularly given the risk the Fed run of sparking a market panic were a larger cut to be delivered.”
MATT ROWE, HEAD OF PORTFOLIO MANAGEMENT, CROSS ASSET STRATEGIES AT NOMURA CAPITAL MANAGEMENT, NEW YORK, NY
“The numbers came in at an ideal spot for what the market was hoping for. The unemployment rate remained relatively low coming in at 4.2%. It’s not showing some kind of catastrophe break down in the labor market. Also the hourly rate was not cut back. One thing that people were focused on was to see if from an employer standpoint if hours were being cut back and that doesn’t appear to be the case.”
“Today’s numbers don’t look like a recession is imminent. It just looks like things are slowing down a bit, not like something cataclysmic is imminent.
“The market’s going to love this. Today, I think we’ll see the market rally on the open. What the market’s going to get out of this is clear cover for the Fed to be cutting rates and a path to cutting rates more than once … I would be surprised if we don’t finish the day in the green.”
