What's behind the U.S. jobs report for August?

On the latest edition of Market Week in Review, Mark Eibel, director, client investment strategies, and Rob Cittadini, senior director, U.S. institutional, dug into the recently released U.S. employment report for August. They also chatted about the likelihood of a U.S. Federal Reserve (the Fed) rate cut later this month, as well as the latest developments surrounding Brexit.

U.S. economy adds 130,000 jobs in August

130,000 new jobs were created during August, the U.S. Labour Department reported on 6 September - an amount Eibel characterised as OK, but not great. "Nonfarm payroll additions in August were a little bit below consensus estimates," he noted, "and roughly 25,000 of these additions were temporary positions created for the 2020 census." Job gains from the previous few months were also adjusted downward, Eibel said. However, he added that the moving average remains above 100,000 new jobs per month.

"Neither the stock market or the fixed-income market has had much of a reaction to the August numbers," Eibel said, "which shows that the report just isn’t much of a market-mover either way."

Fed September rate cut: A near certainty?

Several Fed officials offered comments on the state of the economy during the week of 2 September Eibel said, including New York Fed President John Williams, who is sometimes seen as the voice of the Fed. Williams’ remarks were largely interpreted as dovish, Eibel said, noting they were consistent with previous comments of his. "In general, the recent remarks from Williams and other Fed officials didn’t generate much in the way of headlines - which tells you the Fed is largely sticking to its script," he observed.

This means that a 25 basis-point rate cut at the next FOMC (Federal Open Market Committee) meeting is a near certainty, Eibel said, adding that he believes another quarter-percentage point cut at the end of October is also likely.

Markets rally on positive news surrounding Brexit, Italy and Hong Kong

From a global standpoint, good news largely trumped bad news for markets the week of 2 September, Eibel said. Positive developments in Hong Kong and Italy helped ease market jitters, with the S&P 500® Index up roughly 2% on the week, as of mid-morning Pacific time on 6 September.

In addition, news that China and the U.S. are planning to restart trade negotiations in October helped send markets higher, he noted, although the eventual outcome is still uncertain. Brexit uncertainty also remains elevated, Eibel said, as the clock winds down to 31 October, when the UK is scheduled to depart the European Union. However, recent actions taken by Parliament may postpone the UK’s departure date until January 2020, he noted. "Hopefully, by at least January, we’ll see some sort of resolution on Brexit," Eibel said, "as markets don’t like uncertainty, and Brexit has been three-plus years of uncertainty."

Any opinion expressed is that of Russell Investments, is not a statement of fact, is subject to change and does not constitute investment advice.