S&P 500 Rebounds but Bonds Slip after Mixed August Jobs Report

Also, 10-year T-note, gold, crude oil and Japanese yen futures

1. S&P 500 E-mini futures (/ES): +0.04% 

2. 10-year T-note futures (/ZN): +0.08% 

3. Gold futures (/GC): +0.35% 

4. Crude oil futures (/CL): +0.49% 

5. Japanese yen futures (/6J): +0.31% 

The U.S. labor market continues to moderate, but traders aren’t acting like it means a recession is imminent. The August U.S. jobs report was better than its predecessor but still missed expectations, with headline jobs growth coming in at a modest 142,000 vs. 160,000 expected. The unemployment rate (U3) eased to 4.2% from 4.3%, while wages surprised and came in stronger at 0.4% month over month (m/m) and 3.8% year over year (y/y) vs. 0.3% m/m and 3.7% y/y expected. 

Continued albeit more moderate jobs growth, coupled with stability in the labor force participation rate at 62.7%, was enough to pull the unemployment rate (U3) lower to 4.2%. Nevertheless, it remains the case that the Sahm rule is triggered. The rule suggests a recession has started once the unemployment rate rises by more than 0.5% relative to the minimum of the three-month averages from the previous 12 months; the August jobs report puts the Sahm Rule indicator at 0.57% from 0.53% last report. 

After a week of lesser U.S. labor market data showing continued moderation, the heftier August jobs report did little to offer any clarity on the path forward for the Federal Reserve. Ahead of the numbers, rates markets were discounting 47% chance of a 50-basis-point (bps) rate cut later this month; those odds have run as high as 60% this morning before dropping back to 47%.  

The S&P 500 futures (/ESU4) were mostly steady ahead of the New York open after traders digested the latest labor market data for the United States.

Broadcom (AVGO) was down over 7% ahead of the open after the chipmaker reported better-than-expected earnings but disappointed on fourth-quarter guidance. Stocks are on track to record losses for the week, with the S&P 500 looking at breaking a three-week winning streak.  

Bonds moved higher after the government unveiled downward revisions in jobs added for the last two months. That helped boost the case for rate cuts from the Fed. The underlying 10-year yield is on the verge of trading at the lowest levels seen since May 2023, underscoring the expectations for rate cuts.  

Next week, auctions are back in focus with three-year notes (Tuesday), 10-year notes (Wednesday) and 30-year bonds (Thursday) on tap.

Gold prices (/GCZ4) initially spiked on the jobs data this morning, but the gains were quickly trimmed ahead of the New York open. The metal is near its all-time highs and may require a shakeout before the next push higher, as profit-taking could come into play on any up moves. Meanwhile, weaker yields and a falling dollar should help to support gold’s structural backdrop over the mid- to long-term.  

Demand concerns controlled the narrative for crude oil prices (/CLZ4) this week, but prices are getting a bump today after a surprisingly large inventory draw in crude oil, according to yesterday’s report from the Energy Information Administration (EIA). Meanwhile, there appears to be progress between factions in Libya that could lead to a deal that would unleash the country’s oil onto markets. Eyes are on OPEC in the coming weeks. Will the cartel move ahead with planned production increases?  

Japanese yen futures (/6JU4) are off to a good start for September, with prices on track to rise about 2% this week. The Japanese currency saw a small pop on the jobs numbers but has surrendered those gains, although it remains higher on the day. Bank of Japan (BOJ) officials continued to vow that rates would rise if supported by economic conditions. The prevailing sentiment between the BOJ and the Fed lends support to further upside for the yen.  

Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for nearly 20 years. He has consulted with multinational firms on FX hedging and lectured at Duke Law School on FX derivatives. Vecchio searches for high-convexity opportunities at the crossroads of macroeconomics and global politics. He hosts Futures Power Hour Monday-Friday and Let Me Explain on Tuesdays, and co-hosts Overtime, Monday-Thursday. @cvecchiofx

Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater

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