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Soft July payrolls leave Fed rate odds near 50-50 despite July surprise
Despite the payrolls drop, the market is still pricing about a 50-50 chance of a Fed rate rise next month, with Treasury yields only marginally lower.
Markets pushed back against a sharper rethink of interest rates after July payrolls fell and the unemployment rate declined, according to Yahoo Finance, leaving Treasury yields only marginally lower on the day. The soft jobs print did not shift rate expectations as much as the initial reaction suggested, as markets are still pricing roughly a 50-50 chance the Federal Reserve will raise rates next month.
Yahoo Finance pointed to several reasons for the caution in rates trading, including the unemployment rate drop following the payrolls surprise, still-choppy oil prices, and renewed political pressure on the Fed. The outlet also flagged a heavy supply week, with $125 billion in new Treasury issuance due.
Looking ahead, Yahoo Finance said the next key catalyst is the Wednesday release of July consumer price inflation, with both annual headline and core rates expected to tick lower for the month, though headline inflation is still expected to remain above 3%. Oil was also a drag on sentiment, with Brent crude rising above $84 per barrel on Monday as hopes of an Iran deal were tempered by Tehran’s position related to concessions before the Strait of Hormuz is reopened.
In the background for equities, Yahoo Finance said markets are still buoyed by second-quarter earnings season, which is showing an annual aggregate profit gain of 51% for S&P 500 companies based on LSEG data. Outside the United States, Asia markets were generally higher, while China’s July inflation data came in below forecast, and the daily calendar was described as thin with earnings updates due from Applied Materials, Cisco, and CoreWeave.
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