Labor Market Shows Early Signs of Cooling

Rates plummet following labor data. Weak labor data forced swap rates ~15bps lower in the early goings of the session. However, rates grinded higher throughout the afternoon and closed 6-9bps lower, the 2y UST yield now at 4.81%, the belly of the curve near 4.50%, and the long end at 4.65%-4.75%. The move cemented an 11-20bp decline across the curve this week, while Fed funds futures now lean toward two rate cuts in 2024 versus just one at the start of the week. Meanwhile, equities soared on the data, with the NASDAQ leading major equity indices at +2%, while the S&P500 and DJIA rose ~1.25%.

Labor market flashes signs of cooling. April labor data released today unexpectedly showed cooling after months of persistent strength. Nonfarm payrolls grew by 175,000 vs. 240,000 estimates, much lower than revised growth of 315,000 in March. Similarly, the unemployment rate ticked up 0.1% to 3.9%, vs. estimates of remaining static at 3.8%. The release comes after Chair Powell highlighted the importance of labor market softening in the FOMC’s decision making process before cutting rates. Though the data was deflationary, the Fed will likely need more data to be convinced of a trend.

US services index shrinks to a multiyear low. The US services sector contracted in April for the first time since 2022 and slowed to a 4y low. The ISM services index was 49.4, which was lower than all estimates taken in a Bloomberg survey of economists. Meanwhile, prices paid for services increased well beyond forecasts, similar to data earlier this week that showed price increases for manufacturing inputs. Chair of the ISM committee, Anthony Nieves, said that inflation and geopolitical issues remain the largest concerns amongst respondents.