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Briefing.com Summary:
*The August employment report solidified the prospect of a September rate cut and increased the probability of rate cuts in October and December.
*The U-6 unemployment rate jumped to 8.1% from 7.9%.
*Broadcom is up 14% following its earnings report.
If the stock market only had to concentrate on Broadcom's (AVGO) earnings report, the equity futures market would have likely shown a lot more buying conviction. Shares of AVGO are up 14% in pre-market trading, with investors thoroughly enthused by the company's announcement that it has secured $10 billion in orders from a new customer.
Alas, the market had other things on its mind to keep broad market enthusiasm in check, and, no, we're not talking about the 20% decline in lululemon athletica (LULU) following its earnings report. We're talking about the Employment Situation Report for August that was released at 8:30 a.m. ET.
Prior to that release, the S&P 500 futures were just 0.1% above fair value, and now they are 0.3% above fair value. In other words, the report created a buzz but not a sting for the bulls.
The reason being is that the overall report leaned to the softer side of things, which isn't great economically speaking, yet, because it leaned that way, it also fortified the market's belief that there will be a rate cut at the September FOMC meeting and its hope that there will be additional rate cuts at the October and December FOMC meetings—a view that is supportive for a market pining for rate cuts.
Payroll growth was somewhat anemic in August (additional revisions for June payrolls produced job losses that month); the U-6 unemployment rate, which accounts for unemployed and underemployed workers, jumped to 8.1% from 7.9%; the number of workers unemployed for 27 weeks or more accounted for 25.7% of the unemployed versus 24.9% in July; manufacturing sector payrolls declined by 12,000; and average hourly earnings growth decelerated on a year-over-year basis.
Simply put, this was not an employment report to crow about. The Treasury market knows as much. The 2-yr note yield is down 11 basis points to 3.48%, and the 10-yr note yield is down 11 basis points to 4.07%.
The fed funds futures market, meanwhile, sees rate-cut writing on the wall. There is now a 100% probability of at least a 25-basis point cut at the September meeting to 4.00-4.25%, a 79.5% probability of at least a 25-basis point rate cut to 3.75-4.00% at the October meeting, and a 71.0% probability of at least a 25-basis point rate cut to 3.50-3.75% at the December meeting, according to the CME FedWatch Tool.
Notable headlines from the August Employment Situation Report:
- August nonfarm payrolls increased by 22,000 (Briefing.com consensus: 78,000). The 3-month average for total nonfarm payrolls increased to 29,000 from 28,000. July nonfarm payrolls revised to 79,000 from 73,000. June nonfarm payrolls revised to -13,000 from 14,000.
- August private sector payrolls increased by 38,000 (Briefing.com consensus: 90,000). July private sector payrolls revised to 77,000 from 83,000. June private sector payrolls revised to -27,000 from 3,000.
- August unemployment rate was 4.3% (Briefing.com consensus: 4.3%) versus 4.2% in July. Persons unemployed for 27 weeks or more accounted for 25.7% of the unemployed versus 24.9% in July. The U6 unemployment rate, which accounts for unemployed and underemployed workers, increased to 8.1% from 7.9% in July.
- August average hourly earnings were up 0.3% (Briefing.com consensus: 0.3%) versus 0.3% in July. Over the last 12 months, average hourly earnings have risen 3.7% versus 3.9% for the 12 months ending in July.
- The average workweek in August was 34.2 hours (Briefing.com consensus: 34.3) versus a downwardly revised 34.2 hours (from 34.3) in July. Manufacturing workweek edged down to 40.0 hours from 40.1 hours. Factory overtime was unchanged at 2.9 hours.
- The labor force participation rate increased to 62.3% from 62.2%.
- The employment-population ratio held at 59.6%.
Currently, the S&P 500 futures are up 24 points and are trading 0.3% above fair value, the Nasdaq 100 futures are up 205 points and are trading 0.8% above fair value, and the Dow Jones Industrial Average futures are unchanged and are trading in line with fair value.
