Jobs Report Misses Forecast, Boosting Case for Fed Rate Cut

The S&P 500 Index ($SPX) (SPY) on Friday morning is up +0.36%, the Dow Jones Industrials Index ($DOWI) (DIA) rose +0.19%, and the Nasdaq 100 Index ($IUXX) (QQQ) rose +0.48%.  

Following a revision that showed a job market slowdown in July, the U.S. labor market saw a significant decrease in job creation in August. The increase of just 22,000 nonfarm payrolls fell well below expectations, with the unemployment rate rising to 4.3%. These recent signs of a weakening labor market will likely influence the Federal Reserve to cut interest rates this month.

In yesterday’s trading session, Wall Street’s three main equity benchmarks closed in the green. T. Rowe Price Group (TROW) climbed over +5% and was the top percentage gainer on the S&P 500 after Goldman Sachs announced plans to invest up to $1 billion in the company and partner with the asset manager to sell private-market products to retail investors. Also, most chip stocks gained ground, with Micron Technology (MU) rising more than +4% to lead gainers in the Nasdaq 100 and KLA Corp. (KLAC) advancing over +3%. In addition, Amazon.com (AMZN) rose over +4% and was the top percentage gainer on the Dow after announcing several positive business updates, including a new partnership for its Project Kuiper and favorable news regarding its investment in AI startup Anthropic. On the bearish side, Salesforce (CRM) slid more than -4% and was the top percentage loser on the Dow after the cloud software company provided disappointing Q3 guidance.

The ADP National Employment report released on Thursday showed that U.S. private nonfarm payrolls rose by 54K in August, weaker than expectations of 73K. Also, the number of Americans filing for initial jobless claims in the past week rose by +8K to a 10-week high of 237K, compared with the 230K expected. At the same time, U.S. Q2 nonfarm productivity was revised upward to +3.3% q/q, stronger than expectations of +2.8% q/q, while unit labor costs were revised lower to +1.0% q/q, weaker than expectations of +1.2% q/q. In addition, the U.S. ISM services index rose to 52.0 in August, stronger than expectations of 50.9.

“The Federal Reserve’s free pass on the labor market has ended. You can expect the Fed to tilt its balance of risks to cut rates in September,” said Jamie Cox at Harris Financial Group. 

New York Fed President John Williams stated on Thursday that his forecast is that it will “become appropriate” to lower interest rates “over time,” while refraining from specifying the timing or pace of the reductions. Also, Chicago Fed President Austan Goolsbee said he is uncertain whether a rate cut will be appropriate at the Fed’s upcoming meeting, citing ongoing uncertainty over how much tariffs might accelerate inflation and how much they might be weighing on the labor market. “It’s a live meeting for me, but I haven’t, I haven’t made-up my mind on that,” Goolsbee said.

Meanwhile, U.S. rate futures have priced in a 99.4% probability of a 25 basis point rate cut at September’s monetary policy meeting.

In tariff news, U.S. President Donald Trump said on Thursday he would impose tariffs on semiconductor imports “very shortly” but exempt goods from companies like Apple that have pledged to increase their U.S. investments.

Today, all eyes are focused on the U.S. monthly payroll report, which is set to be released in a couple of hours. The report will serve as a key consideration for Fed officials ahead of their September policy meeting. Economists, on average, forecast that August Nonfarm Payrolls will come in at 75K, compared to the July figure of 73K.

A survey conducted by 22V Research revealed that investor attention has shifted sharply to payrolls after last month’s weak figure and large revisions. According to the tally, 36% of respondents expect a “risk-off” market reaction to the key jobs report, 35% anticipate a “mixed/negligible” response, and 29% expect “risk-on.”

“The most relevant question for the August payrolls report is: did June see the bottoming for job creation or is there still further downside yet to be realized?” said Vail Hartman at BMO Capital Markets. “In the event that Friday’s data shows an improvement from the recent lull in hiring, then the Fed would have grounds for a patient approach to rate cuts over the balance of the year. Conversely, if NFP disappoints, the Fed could choose to express its dovishness by dropping the year-end dot in the SEP, signaling that it expects to cut in October and December,” he said. 

Investors will also focus on U.S. Average Hourly Earnings data. Economists expect August figures to be +0.3% m/m and +3.7% y/y, compared to the previous numbers of +0.3% m/m and +3.9% y/y.

The U.S. Unemployment Rate will be reported today as well. Economists forecast that the August figure will creep up a tick to 4.3%, the highest level since 2021, from 4.2% in the prior month.

In the bond market, the yield on the benchmark 10-year U.S. Treasury note is at 4.158%, down -0.43%.

The Euro Stoxx 50 Index is up +0.01% this morning, swinging between small gains and losses, as investors look ahead to the key U.S. nonfarm payrolls report. Technology stocks outperformed on Friday. Still, the benchmark index is on track to post marginal losses for the week. Final data from Eurostat confirmed on Friday that the Eurozone economy expanded slightly in the second quarter, making it unlikely that the European Central Bank will cut its key interest rate next week. Separately, data showed that U.K. retail sales rose in July, providing a lift as the country seeks to inject momentum into its sluggish economy. In addition, data showed that German monthly factory orders unexpectedly fell in July, as weaker foreign demand underscored a fragile export market amid rising trade barriers. Meanwhile, the German Institute for Economic Research said the country’s economy is showing early signs of emerging from a prolonged slump, with gross domestic product expected to rise by 0.2% in 2025, down from the previous projection of 0.3% growth. “The German economy is recovering, unusually, not through strong foreign trade but through domestic forces — above all through the expansion of the public sector,” said the DIW’s chief economist Geraldine Dany-Knedlik. In other news, French Prime Minister Francois Bayrou isn’t expected to survive a confidence vote on Monday, but Jefferies said its bigger concern about France was ratings rather than politics, with Fitch Ratings set to review the country on September 12th. In corporate news, Hexagon AB (HEXAB.S.DX) climbed over +6% after the Swedish company announced it will sell its design and engineering division to Cadence Design for $3.16 billion.

U.K. Retail Sales, U.K. Core Retail Sales, Germany’s Factory Orders, Eurozone’s GDP, and Eurozone’s Employment Change data were released today.

U.K. July Retail Sales rose +0.6% m/m and +1.1% y/y, compared to expectations of +0.3% m/m and +1.3% y/y.

U.K. July Core Retail Sales rose +0.5% m/m and +1.3% y/y, stronger than expectations of +0.4% m/m and +1.2% y/y.

The German July Factory Orders unexpectedly fell -2.9% m/m, weaker than expectations of +0.5% m/m.

Eurozone’s GDP came in at +0.1% q/q and +1.5% y/y in the second quarter, compared to expectations of +0.1% q/q and +1.4% y/y.

Eurozone’s Employment Change arrived at +0.1% q/q and +0.6% y/y in the second quarter, compared to expectations of +0.1% q/q and +0.7% y/y.

Asian stock markets today settled in the green. China’s Shanghai Composite Index (SHCOMP) closed up +1.24%, and Japan’s Nikkei 225 Stock Index (NIK) closed up +1.03%. 

China’s Shanghai Composite Index closed sharply higher today, rebounding strongly from the prior session’s selloff as investors reassessed concerns over potential regulatory curbs on excessive market speculation. Technology stocks, which bore the brunt of Thursday’s selloff, led the rebound on Friday. Also, solar stocks rallied after a leading polysilicon producer said the industry had reached a bottom and regulators urged more measures to boost sector revenue. Still, the benchmark index notched a weekly loss, snapping a 2-month rally that had lifted it to a 10-year high. Thursday’s selloff came after Bloomberg reported that China’s financial regulators were weighing several measures to cool the stock market, including easing some restrictions on short selling and policies to curb speculative trading. Although these moves may cause short-term pain, they are also raising hopes among investors that experienced regulators and large state-backed funds, known as the national team, can effectively manage a sustained rise in stock prices. Meanwhile, China’s central bank injected 1 trillion yuan ($139.80 billion) into the banking system on Friday through outright reverse repo operations to keep liquidity “reasonably ample,” which some interpreted as an effort to calm investors. In corporate news, Fosun International rose over +3% in Hong Kong after announcing that a unit agreed to sell a 40% stake in Portugal’s hospital operator Luz Saude for $363 million to a Macquarie Group affiliate.

Japan’s Nikkei 225 Stock Index closed higher and hit a more than 2-week high today after U.S. President Donald Trump signed an executive order implementing his trade deal with Japan. Sentiment was further boosted by strong overnight gains on Wall Street. Automobile stocks advanced on Friday as investors welcomed Trump’s order to cut tariffs to 15% on most of Japan’s exports, including autos. Relief for aerospace and automobile imports will take effect within seven days, according to the executive order. Healthcare and retail stocks also climbed. The benchmark index posted gains for the week. Meanwhile, government data released on Friday showed that Japanese real wages rose for the first time in seven months in July, supported by hefty summertime bonuses, while consumer spending increased for the third consecutive month. Although the July headline figures were positive, government officials and analysts noted that elevated inflation continued to weigh on consumption, complicating the Bank of Japan’s decision on when to resume interest rate hikes. Moody’s Analytics economist Stefan Angrick said, “The only reason reported real wages grew in July is because of sample distortions. The reality is that inflation is still outpacing wage growth.” In other news, lawmakers from Japan’s ruling party will vote on Monday on whether to hold an extraordinary leadership election that could unseat embattled Prime Minister Shigeru Ishiba and significantly impact the Japanese economy. The Nikkei Volatility Index, which takes into account the implied volatility of Nikkei 225 options, closed up +1.89% to 24.32.

The Japanese July Household Spending rose +1.7% m/m and +1.4% y/y, compared to expectations of +1.3% m/m and +2.2% y/y.

The Japanese July Leading Index stood at 105.9, stronger than expectations of 105.8.

Pre-Market U.S. Stock Movers

Broadcom (AVGO) climbed over +8% in pre-market trading after the semiconductor and software company posted upbeat FQ3 results and issued above-consensus FQ4 revenue guidance. Also, Bloomberg reported that Broadcom was helping OpenAI design and produce an AI accelerator, with the two companies planning to ship the first chips in that lineup in 2026.

Samsara (IOT) surged more than +10% in pre-market trading after the company reported better-than-expected Q2 results and gave strong Q3 guidance.

DocuSign (DOCU) rose over +6% in pre-market trading after the e-signature company posted stronger-than-expected Q2 results and raised its full-year billings guidance.

Lululemon Athletica (LULU) tumbled over -18% in pre-market trading after the athleisure company cut its full-year guidance for the second time in a row.

Copart (CPRT) fell more than -2% in pre-market trading after reporting weaker-than-expected FQ4 revenue.

You can see more pre-market stock movers here

Today’s U.S. Earnings Spotlight: Friday - September 5th

ABM Industries (ABM), Ermenegildo Zegna NV (ZGN), Children’s Place (PLCE).