New York Stock Market Rises on September Rate Cut Expectations... Unemployment Claims Highest in a Year

Powell Cheers September Cut Signal
Continuing Unemployment Claims Highest in 2 Years 8 Months
Strong Earnings Boost Meta... Apple and Amazon Earnings Released That Day

The three major indices of the U.S. New York stock market showed an upward trend in the early trading hours on the 1st (local time). Following Federal Reserve (Fed) Chair Jerome Powell's indication of a possible rate cut in September the previous day, and additional signals of employment slowdown, expectations grew that a pivot (policy shift) is imminent. While Meta, the parent company of Facebook, reported better-than-expected quarterly earnings, investors are awaiting the earnings reports of Apple, Amazon, and Intel, which are scheduled to be released on the same day.

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As of 9:45 a.m. at the New York Stock Exchange (NYSE) on the day, the Dow Jones Industrial Average was trading at 40,967.76, up 0.31% from the previous close. The S&P 500, which focuses on large-cap stocks, rose 0.77% to 5,565, and the tech-heavy Nasdaq index was up 0.94% at 17,764.88.

The Fed held the federal funds rate steady for the eighth consecutive time at 5.25?5.5% during the Federal Open Market Committee (FOMC) meeting the previous day. In the subsequent press conference, Chair Powell signaled a rate cut in September. He stated, "With the labor market cooling, the risk of inflation rebound has decreased, while the risk of employment slowdown can now be considered substantial," adding, "A policy rate cut could be discussed at the next meeting in September." He further explained, "It is not yet the appropriate time to cut the policy rate, but we are getting closer."

The employment data released on the morning following the FOMC meeting also supported concerns about a slowdown in the U.S. labor market. According to the U.S. Department of Labor, new unemployment claims for the week of July 21?27 reached 249,000, the highest in nearly a year. This exceeded both the expert forecast of 236,000 and the revised figure of 235,000 from the previous week. Continuing claims, which count those claiming unemployment benefits for at least two weeks, totaled 1,877,000 for the week of July 14?20, marking the highest level in two years and eight months since November 2021.

The private labor market research firm ADP reported that private sector job creation in July increased by 122,000, falling short of the market expectation of 147,000. Wage growth slowed to its lowest pace in three years since 2021, intensifying concerns about weakening employment.

Neil Dutta, Chief Economist at Renaissance Macro Research, analyzed, "The economic indicators released this morning showed continued deterioration," adding, "By the time the Fed starts cutting rates, it will already be behind the curve."

Now, the market's greatest focus shifts to the July employment report to be released by the U.S. Department of Labor on the 2nd. Experts expect nonfarm payrolls to have increased by 177,000 last month, a significant slowdown compared to June's 206,000. The unemployment rate is expected to remain at 4.1%, the highest in two years and seven months, matching the previous month. If the employment data meet expectations, the likelihood of a rate cut in September will become even stronger.

The market is already betting on three rate cuts within the year, starting with a cut in September. According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds futures market fully prices in a rate cut of at least 0.25 percentage points at the September FOMC meeting. The probability of a 0.5 percentage point or greater cut in November is priced at 77.5%, and a 0.75 percentage point or greater cut in December is priced at 72%.

In Europe, following the European Central Bank (ECB), the Bank of England (BOE) has also begun pivoting. The BOE decided to cut its benchmark interest rate by 0.25 percentage points to 5% annually. This is the first rate cut after 14 consecutive hikes until August last year and seven consecutive holds until June this year.

Among individual stocks, Meta surged 9.51% following better-than-expected earnings reported the previous day. Shake Shack soared 17.05% after releasing earnings that exceeded market expectations. British semiconductor company ARM Holdings fell 8.67% after issuing a disappointing quarterly earnings forecast.

Government bond yields are plunging. The U.S. 2-year Treasury yield, sensitive to monetary policy, is currently down 8 basis points (1 bp = 0.01 percentage points) from the previous trading day at 4.25%. The U.S. 10-year Treasury yield, a global benchmark for bond yields, is trading around 4.01%, down 9 basis points from the previous day.

International oil prices are rising amid concerns that the killing of the top leader of the Palestinian militant group Hamas could escalate instability in the Middle East. West Texas Intermediate (WTI) crude oil is trading at $78.40 per barrel, up $0.49 (0.63%) from the previous day, while Brent crude, the global oil price benchmark, is up $0.50 (0.62%) at $81.34 per barrel.