The unexpectedly weak U.S. jobs report for July did not produce the decisive reaction in interest rates that some market participants may have anticipated. Although payrolls fell by 23,000 in July and May and June payrolls were revised down by a combined 103,000, Treasury yields finished the day only marginally lower and markets continued to price roughly a 50-50 probability of a Federal Reserve rate rise next month.
Several developments helped blunt an immediate market pivot. Policymakers and traders noted the concurrent surprise decline in the unemployment rate, which complicated the interpretation of the payrolls shock. At the same time, oil moved higher, with Brent crude above $84 per barrel on Monday, while political pressure on the Federal Reserve resurfaced amid demands directed at Governor Lisa Cook. Investors also face a heavy calendar of supply and data this week, including $125 billion of new Treasury issuance and the release on Wednesday of the consumer price inflation reading for July.
The July consumer price index is expected to show a small easing in both headline and core annual rates, though headline inflation is still forecast to remain above 3 percent. That report is being watched closely by markets as a potential signal for the path of policy, and could carry more weight for traders than the initial payrolls surprise.
Oil’s rebound added to the caution. Brent trading back above $84 per barrel followed a slowing in hopes for a swift reopening of the Strait of Hormuz, after Tehran insisted on concessions from Washington before the waterway is re-opened. Higher energy prices can complicate the inflation outlook, contributing to the market’s measured response to the jobs data.
Concerns over central bank independence intensified late last week after President Donald Trump demanded Governor Lisa Cook answer mortgage-related allegations within three weeks or face dismissal. The president’s threat references a dismissal path that the Supreme Court has already ruled against. The political pressure on a Fed official is being watched by investors for what it may mean for policymaking and market confidence.
Equity markets, however, remain supported by a strong corporate profit backdrop. Second-quarter earnings season has so far registered an annual aggregate profit gain of 51 percent for S&P 500 companies, according to LSEG data, a factor helping U.S. stocks reach fresh highs on Friday and underpinning gains in Asian markets on Monday. U.S. equity futures were slightly higher ahead of the U.S. open.
China’s July inflation data came in below forecasts on Monday, adding a regional data point that traders digested alongside the U.S. releases. The broader market calendar for the week is relatively light, with the earnings season beginning to wind down. Market participants are still watching for corporate updates from Applied Materials, Cisco and CoreWeave.
Labor market detail remains a focal point. Payrolls were down 23,000 in July, and the downward revisions to May and June totalled 103,000 jobs, leaving average job growth at about 20,000 per month over the past three months. Last year, large downward revisions in May and June prompted a presidential dismissal of the Bureau of Labor Statistics commissioner at the time, after accusations that the data had been manipulated were made without producing evidence.
On Friday, the Senate confirmed career economist Brett Matsumoto to serve as commissioner of the Bureau of Labor Statistics. The confirmation moves the agency forward on leadership even as job statistics and their interpretation remain highly scrutinized.
Chart snapshot
Payrolls unexpectedly fell by 23,000 in July. Revisions subtracted 103,000 jobs from May and June combined, bringing three-month average monthly job growth to roughly 20,000.
Events to watch today
- U.S. Conference Board Employment Trends Index for July - 10:00 a.m. EDT
- Cleveland Fed’s Beth Hammack speaks - 3:00 p.m. EDT
For readers who follow markets daily, a Morning Bid podcast episode discusses the soft jobs print and political developments affecting the Fed. Subscribe to hear journalists discuss the most important stories in markets and finance each weekday.