Wall Street dips on slowing but strong US labor market

NEW YORK, (Reuters): Wall Street stocks ticked down in choppy trading while the USD and Treasury yields were lower after a new government jobs report showed a slowing but still tight US labor market.

Nonfarm payrolls increased by 187,000 jobs last month, the Labour Department said in its closely watched employment report on Friday, slightly below expectations of 200,000 jobs. At the same time, the unemployment rate fell to 3.5 per cent from 3.6 per cent in June.

“This is still not the picture of the labor market we would expect to see if the economy were in danger of decelerating dramatically in the short term, although without question there are signs of moderation,” Rick Rieder, BlackRock’s Chief Investment Officer of Global Fixed Income, said in a statement.

Read More: Wall Street closes near flat as Treasury yields surge

The Dow Jones Industrial Average (.DJI) and the S&P 500 (.SPX) both declined around 0.3 per cent. The technology-heavy Nasdaq Composite (.IXIC) was down 0.1 per cent, boosted by a 9 per cent surge by Amazon (AMZN.O), which reported sales growth and profit that beat analyst estimates. Apple (AAPL.O) forecast a sales slump to continue into the current quarter; it was last down about 4 per cent.

European stock indexes rebounded on Friday, with the STOXX 600 up 0.3 per cent on the day (.STOXX), while London’s FTSE 100 (.FTSE) rose about 0.5 per cent.

The MSCI All-World index (.MIWD00000PUS) was little changed on the day. It had been headed for its biggest weekly drop in five months, thanks in part to a surge in government bond yields this week after more data pointed to slowing inflation and the prospect of a deluge of US Treasury supply.

Economists who have long been forecasting a downturn by the fourth quarter of this year are increasingly becoming convinced that the “soft-landing” scenario for the economy envisaged by the US Federal Reserve is now possible.

Randy Frederick, managing director of trading and derivatives at Charles Schwab in Austin, Texas, said the mixed jobs report “plays into the soft landing, or the no-landing, narrative that the markets have been slowly trudging higher on.”

“This ought to relieve some of that concern about the fact that the economy is too strong, which would cause concern that perhaps we get another rate hike in September,” Frederick added.

Data also showed the number of Americans filing new claims for unemployment benefit rose slightly last week, while layoffs dropped to an 11-month low in July as labour market conditions remained tight.

The USD meanwhile fell 0.5 per cent against a basket of major currencies , a reversal after two consecutive weekly gains.

It has made the most headway against some of this year’s better-performing currencies, including the pound , under pressure since the Bank of England delivered a smaller rate rise than many had hoped for. Sterling was last up 0.4 per cent on the day, still down about 0.6 per cent in August.

China’s yuan ticked up 0.1 per cent after an official said on Friday the central bank would use policy tools flexibly to ensure reasonably ample liquidity in the banking system.

Investors have been hoping policymakers will deliver more broad-based stimulus to boost the post-pandemic recovery as the world’s second-largest economy struggles with weak demand at home and abroad.

US Treasury yields dropped after jobs data on Friday showed the US economy added fewer jobs than expected in July, but investors hesitated to rule out further monetary tightening.

The yield on 10-year Treasury notes was down 12.7 basis points to 4.062 per cent. 30-year yields were down 8.9 basis points to 4.215 per cent.

Rating agency Fitch this week surprised markets by stripping the United States of its prized triple-A credit rating and cited the country’s deteriorating fiscal position as one of the key drivers, thrusting the government’s finances into the spotlight.

Earlier in the week, the US Treasury said it expects to borrow just over $1 trillion in the third quarter of this year alone, $273 billion more than its May estimate.

Oil prices headed for a sixth straight weekly gain, driven by the prospect of reduced supply from Saudi Arabia and Russia. US crude rose 1.4 per cent to $82.69 per barrel and Brent was at $86.10, up 1.13 per cent on the day.