Aug Nonfarm Payrolls Weaker Than Expected

STOCK INDEX FUTURES

S&P 500 futures advanced to record highs in the overnight trade. However, selling emerged when the August employment report came in on balance weaker than expected.

Nonfarm payrolls in August increased 235,000 when a gain of 740,000 was expected. Private payrolls were up 243,000 when up 693,000 was anticipated.

Average hourly earnings increased 0.6%, which compared to the predicted increase of 0.3%.

The unemployment rate was 5.2%, as estimated.

The 8:45 central time August PMI composite final is expected to be 55.4 and the 9:00 August Institute for Supply Management services index is anticipated to be 62.

Stock index futures are likely to recover today from the morning pressure.

CURRENCY FUTURES

The U.S. dollar index declined in response to the headline weak August nonfarm payrolls portion of the employment report. Longer term, the U.S. dollar is likely to be supported by a safe-haven flow of funds.

Euro zone retail sales fell 2.3% from a month earlier in July, following the revised 1.8% growth in June and missing market expectations a 0.1% increase.

The final reading for the euro zone’s services PMI for August was 59.0, according to data from IHS Markit. This reading is below the 59.8 registered in July and lower than the 59.7 preliminary estimate. A reading above 50 indicates an expansion an activity, while below this threshold indicates a contraction.

The IHS Markit/CIPS U.K. services PMI was revised lower to 55.0 in August, from a preliminary reading of 55.5 and was below the previous month’s 59.6.

INTEREST RATE MARKET FUTURES

The 30-year Treasury bond futures are lower as traders reacted to the inflationary aspects of the increase in average hourly earnings.

Traders continue to focus on when the Federal Reserve will taper its $120 billion a month in asset purchases.

I believe a tapering will be later rather than sooner, and when it is implemented it will be a dovish tapering with any reduction being small.

The 30-year Treasury bond futures are likely to at least partially recover from the morning pressure. Also, the longer term trend is higher for the 30-year Treasury bond futures as the rate of growth in the global economy slows.