Wall Street’s slip on Friday was hardly a capitulation given the S&P 500 had touched a record intraday high mid-session, but still there was plenty of action thanks to another weak set of US job numbers.
The S&P 500 and Dow ended down 0.3% and 0.5% respectively, while the tech-centric Nasdaq held onto a marginal 0.1% gain.
Futures trading on the ASX 200 closed on Friday night pointing to a 0.3% fall this morning.
Data showing jobs growth in the US cooled further in August was the catalyst for several significant shifts on financial markets.
US non-farm payrolls rose 22,000 against a forecast of 75,000 new jobs.
Data showed that in June, the U.S. economy lost 13,000 jobs instead of the initially reported 14,000 payrolls gain.
That saw not only an even higher conviction that the Fed would cut rates later this month but also raised the possibility the cut could well be 50bps.
“This number today puts a 50-basis-point rate cut at the next meeting back on the table,” veteran strategist at B Riley Wealth Management Art Hogan told Reuters.
“More significantly, I think 75-basis-point before the end of the year is now pretty much of a lock.”
The immediate impact of the jobs news was that US and European equity markets went backwards.
Fears of cracks appearing in the world’s largest economy and the prospects of a protracted slowdown, appeared to trump the prospects of lower borrowing costs for business.
US Treasury yields tumbled to five-month lows, taking the US dollar down as well and gold got another leg up on its record-breaking run and is now eyeing $US3,600/ounce.
The Australian dollar gained 0.6% to be heading towards 66 US cents, good news if you are planning a holiday to the US, not so good if you are a local exporter.
“The warning bell that rang in the labour market a month ago just got louder,” Fitch Ratings’ head of US economic research Olu Sonola told Reuters.
“A weaker-than-expected jobs report all but seals a 25-basis-point rate cut later this month,” Dr Sonola said
“The Fed is likely to prioritize labour market stability over its inflation mandate, even as inflation drifts further from the 2% target.
“Four straight months of manufacturing job losses stand out.”
The jobs figures also helped drive down oil prices as traders reassessed the prospects for future demand, along with speculation about another production hike from the OPEC+ cartel.
The global benchmark, Brent Crude, slid more than 2% to $US65.50/barrel
This week’s US consumer price index is the next, and last, key data to be released before the Fed’s rate setting committee meets on September 17.