Weak Labour market sparks simultaneous sell-off in equities and Dollar

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EURUSD,Centralbanks,Macroeconomics

The US economy added 114K jobs in July, well below expectations.

The private sector added 97K jobs, the smallest increase since March last year. The market's knee-jerk reaction was also exacerbated by a rise in the unemployment rate from 4.1% to 4.3% . Wage growth also missed expectations, coming in at 0.2% m/m and 3.6% y/y, down from 0.3% and 3.8% the previous month. The year-over-year wage growth is the lowest in more than three years. The market's reaction to the statistic wasn't trivial, selling off the dollar and equities simultaneously.

Surprisingly, within minutes of the release, interest rate futures were pricing in an 80% chance of a 50-point rate cut in September, up from a bold 20% a day earlier. It must be said that the fresh data isn't bad enough to suggest an economic catastrophe . If expectations of three or more declines before the end of the year become entrenched, it may not be such bad news for the equity market and, at the same time, a big negative for the dollar.

 

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