Market Turmoil: July Jobs Report, Geopolitical Risks Spark Stock Sell-Off As Traders Flee To Treasuries, Yen, Gold

Author: Piero Cingari | August 02, 2024 09:30am

Global markets experienced a major downturn on Friday, continuing the negative sentiment that began the previous day, further exacerbated by U.S. jobs data that came in cooler than expected.

The U.S. economy is showing signs of underlying weaknesses, as the pace of job creation slowed significantly in July, and the unemployment rate unexpectedly increased, causing concern for the Federal Reserve which last week decided to delay an interest rate cut until September.

U.S. employers added 114,000 nonfarm payroll jobs last month, a significant slowdown from the 179,000 jobs created in June and well below the economist consensus estimate of 175,000, according to TradingEconomics. The unemployment rate unexpectedly rose from 4.1% to 4.3%, the highest level since October 2021.

Average hourly earnings increased by 0.2% from the previous month, falling short of expectations of 0.3% and indicating a slowdown in wage growth. Overall, the jobs report was weaker than anticipated from every angle.

In response to these disappointing numbers, the market-implied probability of a 50-basis-point rate cut in September spiked to nearly 70%, up from 22% a day earlier, according to the CME Group’s FedWatch tool.

Meanwhile, geopolitical risks in the Middle East remain extremely high, as Iran’s allies have vowed to retaliate against Israel following this week’s attacks.

Traders Price In Higher Likelihood On A Larger Rate Cut In September

September rate cut	Current probability implied by Fed futures	August 1, 2024	26 July, 2024
50 basis points	69,5%	22,0%	11,5%
25 basis points	30,5%	78,0%	88,2%

While only time will tell if the Fed was too late to act, investors are opting to take some chips off the table and seek refuge in safer assets.

On Friday, equity markets worldwide experienced declines, with negative sentiment beginning in the Asian session.

The Japanese Nikkei index fell nearly 6%, marking its worst day since March 2020, and the downturn extended to Europe, where all indices traded sharply in the red.

In premarket trading in New York, major U.S. averages also saw significant drops, with Nasdaq 100 and S&P 500 futures down 2.3% and 1.5%, respectively, at 08:50 a.m.

Here are the major premarket moves in 10 key exchange traded funds:

• Invesco DB USD Index Bullish Fund ETF (NYSE:UUP) down 0.8%.
• iShares 20+ Year Treasury Bond ETF (NASDAQ:TLT) up 1.8%, potentially on track for its strongest session year to date.
• SPDR Gold Trust (NYSE:GLD) up 1%, nearing record highs.
• Invesco CurrencyShares Japanese Yen Trust (NYSE:FXY) up 1.8%.
• United States Oil Fund (NYSE:USO), which tracks the performance of crude WTI futures, down 2.8%.
• Technology Select Sector SPDR Fund (NYSE:XLK) down 2.6%.
• iShares Russell 2000 ETF (NYSE:IWM) down 3.3%, after similarly closing 3.3% lower on Thursday.
• SPDR S&P Regional Banking ETF (NYSE:KRE) down 3.6%, extending drops following a 4.4% decline on Thursday.
• VanEck Semiconductor ETF (NYSE:SMH) down 4.6%, after closing 6.5% lower a day earlier.
• Utilities Select Sector SPDR Fund (NYSE:XLU) up 0.8%, on track to hit the highest since September 2022.

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Photo: Shutterstock

Posted In: FXY GLD IWM KRE SMH TLT USO UUP XLK XLU