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Dow slides after payrolls contraction, rate path pricing barely changes

Rate futures shifted toward fewer hikes, but the year-end policy range stayed fully priced and the front end moved more than the long end.

Reported · Written up by our desk · Major Pairs

FXStreet reports the July labor market contracted and the Dow Jones Industrial Average rose about 65 points, roughly 0.1%, trading near 54,000 into the afternoon, reflecting a minimal equity reaction to the payrolls data.

The outlet says rate futures moved in one direction toward reduced tightening odds. At the 16 September meeting, the chance of a quarter-point increase fell to 44.1% from 59.2% a week earlier, while the probability of a hold rose to 55.9%. For 28 October, the quarter-point odds dropped to 68.5% from 88.0%.

FXStreet adds that despite the changes in intermediate meeting probabilities, the destination did not shift: on 9 December the current 3.50% to 3.75% range carried zero probability of a change, implying a quarter point remained fully priced by year end. In rates, two-year Treasury yields rallied more than four basis points to 4.204%, while the 30-year yield moved less than one basis point to 5.208%, and the curve steepened as the front end priced a wait that the long end did not fully accept.

The report also attributes the unemployment rate decline to a lower labor force participation rate, with participation slipping to 61.4%, the lowest in more than five years, while U6 underemployment stayed at 7.9%. Wage growth cooled to 3.2% year over year versus 3.5% expected, and prior readings were revised, with the prior month payrolls cut to 20K from an initially reported 57K.

Latest closeDow Jones 53,885.10 ▼0.8%

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