Markets ended the week modestly higher despite renewed trade and economic uncertainty. Markets began the week on a down note, following the U.S. Court of Appeals for the Federal Circuit ruling that the majority of President Trump’s tariffs are illegal. The ruling created fresh trade policy uncertainty which had waned in recent weeks following a spate of trade deals between the US and many of its largest trading partners.
Friday’s weak August employment report, following July’s weak report, confirmed a marked slow down in hiring over the summer. In addition, June and July data was revised lower by a collective 21K. June data was revised down 27K, resulting in a loss of 13K jobs, the first month of outright job losses since December 2020. Markets initially opened higher on the news with a “bad news is good” response regarding the increased probability of a September rate cut. However, markets ultimately ended the day lower, likely due to increased concerns about the possibility of a broader economic slowdown, something a Fed rate cut might not be able to prevent.
Treasury yields across the curve moved lower over the course of the week propelled by disappointing ISM jobs data, weaker-than-expected job openings data and Friday’s employment report. At the short end of the curve, the 3-month yield dropped 0.14% to close the week at 4.01%, while 10- and 30-year yields fell 0.15% and 0.17%, respectively, to end at 4.08% and 4.76%. Over the course of the week, market odds of a September rate cut rose from 86% to 100%, while the odds for three rate cuts by the end of the year increased from 40% to 65%. Though August consumer inflation (CPI) data will be reported prior to the Fed’s September meeting, it is unlikely the report will dissuade the Fed from moving forward with a rate cut.
