Traders up bets on 50 basis point cut as US labour market continues to loosen

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July's figures were also revised up to show a 1.1 per cent gain having previously been estimated at 1.0 per cent increase.
July's figures were also revised up to show a 1.1 per cent gain having previously been estimated at 1.0 per cent increase.

Traders concerned about the health of the US labour market will not have had their fears assuaged by two labour market reports released this week.

According to figures released this afternoon by ADP, the US private sector added 99,000 jobs in August, comfortably below the roughly 145,000 expected by most economists.

August’s rate of job growth was the slowest since January 2021 and was down from 110,000 the month before.

Nela Richardson, chief economist at ADP, said “the job market’s downward drift brought us to slower-than-normal hiring after two years of outsized growth”.

The ADP report came just a day after the latest Job Openings and Labor Turnover Survey (JOLTS), which also came in below expectations.

The survey showed that job openings fell to their lowest level since the start of 2021, with the number of available positions decreasing to 7.67m from 7.91m the month before.

Michael Brown, senior research strategist at Pepperstone, said the figures added further signs that the labour market is cooling “quicker than participants had been expecting”.

Traders have been concerned about the health of the US labour market since last month’s disappointing nonfarm jobs report, which sparked a major sell-off in global equities.

The report showed that unemployment had increased to 4.3 per cent while jobs growth had slowed, raising fears that the US Federal Reserve had waited too long to cut interest rates.

At the end of August, Jerome Powell signalled that the Fed will start cutting interest rates at its next meeting, saying that the “time has come” for interest rates to be cut.

However, Powell did not comment on whether the Fed would cut rates by 25 basis points or go for a larger 50 basis point cut.

According to CME’s Fedwatch tool, there is a 45 per cent chance that the Fed will cut rates by 50 basis points in September. This is up from 35 per cent a week ago.

A lot will depend on tomorrow’s nonfarm jobs report. Economists expect jobs growth to accelerate slightly and the unemployment rate to ease back to 4.2 per cent.

“Another poor reading here would boost concerns that the Fed has waited too long to cut rates, raising the probability of a 50 basis point rate cut on 18th September,” David Morrison, senior market analyst at Trade Nation said.