No Soft-Landing – The Data Says So!

The major financial market mover this week was always going to be the employment report. Markets sloughed off the Fitch downgrade of U.S Treasuries to AA+ because the rating is based on long-term issues (like the size of budget deficits), while the markets are mostly about tomorrow or next week with some lip service to next quarter. (More on this topic below.)

The +187k Non-Farm Payroll report slightly disappointed a market looking for +200k. So, Friday (August 4) produced a one-half percentage point drop in the popular equity indexes, and, concurrently, more significant downward moves in Treasury yields. The yield fall occurred despite the U3 Unemployment Rate falling to 3.5% from 3.6% (from a lack of growth in the labor force). This is likely to weigh on the Fed’s September decision process regarding rates as the Fed secretly wants to see a U3 of 4.5%, but politically they can’t say so!