Daily Market Color

Yield Curve Steepens on Jobs Miss

Tepid market reaction to payrolls

This morning’s much-anticipated August employment report failed to produce the fireworks that some were anticipating. Despite a weaker than anticipated headline figure, Treasury yields/swap rates saw a modest 1-4bps increase across the curve in a bear steepening pattern, with the benchmark 10yr UST yield finishing the week at 1.32%. Major US equity indices also held within a tight range throughout the trading session — the tech-heavy Nasdaq posting the largest move (+0.20%).

Not all bad for August employment

The initial shock of headline payrolls missing estimates by nearly 500k (+235k act vs. +733k exp) quickly faded as markets observed more balanced data in the rest of the report:

  • Payroll additions for the prior two months were revised 143k higher
  • Unemployment rate ticked lower to a 17-month low of 5.2% (matching expectations)
  • Average hourly earnings surged 0.6% MoM (+0.3% exp)
  • Labor participation rate held steady at 61.7%

Overall, the reaction by markets suggests that the figures were not compelling enough in either direction to alter the expectation for the Fed to commence tapering later this year. Upcoming data prints over the next few months, specifically those tied to the labor market and the impact of the Delta variant, will have added importance in determining the Fed’s path forward.

The Week Ahead

Key economic data releases will be limited to the weekly jobless claims (Thursday) and producer inflation (Friday). Markets will also continue to assess the impact from myriad issues including the Delta variant, geopolitical issues in Afghanistan, and the industries harmed by Hurricane Ida. All US financial markets will be closed on Monday in observation of Labor Day. We hope that everyone has a nice long weekend!

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