US payrolls unexpectedly fall 23,000 in July, stocks rise as rate-hike odds recede

Jobs report misses forecasts

The US economy shed 23,000 nonfarm jobs in July, the Bureau of Labor Statistics reported on August 7, missing economist forecasts of 80,000 new hires. Estimates had ranged from 10,000 to 140,000 jobs added. June's figure was revised sharply lower to 20,000 from a previously reported 57,000. The unemployment rate fell to 4.1% from 4.2% in June as the labor force participation rate declined further. Economists had described the labor market as being in a "slow hire, slow fire" mode, and payrolls tend to be softer in July.

Markets react

US stocks rose and Treasury yields fell after the data, as investors judged the report gave the Federal Reserve reason to hold off on raising rates. The S&P 500 had fallen 0.2% the previous day alongside a 0.9% drop in the Dow industrials. The bond rally faded through the session, with Treasury yields nearly retracing their post-data declines, suggesting investors concluded the report was not as weak as initially thought. Interest-rate futures indicated traders pushed back the timing of the next expected Fed rate hike.

The Fed left its benchmark overnight rate in the 3.50%-3.75% range the previous week, with three committee members dissenting in favor of a quarter-percentage-point hike. Before the jobs report, markets had anticipated a September increase. Next week's inflation data could sharpen the policy debate. European shares edged higher, with the STOXX 600 rising 0.2% to 659.59, on track for a fourth consecutive weekly advance. In Asia, Tokyo's Nikkei 225 lost 0.3% to 65,500.10, while China's Shanghai Composite gained 0.8% to 3,931.54 after exports grew about 24% in July.

Yen intervention

Hedge funds cut net short yen positions by roughly half to 63,600 contracts as of August 4, Bloomberg reported, after coordinated US-Japanese efforts to support the currency. Japan's Ministry of Finance confirmed the operation on Monday August 3, with Finance Minister Satsuki Katayama saying Japan remained in close communication with the US Treasury and would "not hesitate to conduct further coordinated interventions in the future."

Analysts estimate Japan sold between about $53 billion and $59 billion. Reuters reported Tokyo may have sold as much as $58.97 billion, while Bloomberg put the figure at about 8.45 trillion yen, roughly $53 billion. Official figures were not due for about a month. Either reading would exceed Japan's previous largest single-day intervention of 5.92 trillion yen on April 29, 2024. The yen had weakened to almost 164 per dollar, its lowest since 1986.

Oil and geopolitics

Brent crude rose nearly 4% on Thursday and gained 1.6% to $83.78 a barrel on Friday, as progress toward reopening the Strait of Hormuz remained uncertain. Iran said it was close to a deal with Oman, but the Trump administration ruled out Iran charging fees to ships while Iran insisted on some measure of control. A fifth of the world's traded oil once passed through the strait. Oil prices have surged as high as $113 during the conflict, now in its sixth month.

Earnings and AI spending

Roughly 85% of S&P 500 companies have reported results, with overall earnings growth shaping up to be the strongest since 2021. The AI boom is pulling investor focus from earnings per share toward cash flow as Big Tech firms plough hundreds of billions into plants and equipment. Alphabet reported second-quarter earnings quadrupling to $112.3 billion on July 23, but its shares fell 7% after the company posted negative free cash flow for the first time since going public, driven by capital expenditures of $44.92 billion that exceeded the $44.15 billion consensus.