Overnight – “Goldilocks” rate cut scenario turns to fear as Payrolls disappoints

US Payrolls disappointed investors on Friday, falling sharply, suffering its worst week since 2023 amid fresh economic worries after data showing the U.S. economy created fewer than expected jobs last month. 

The US economy added fewer jobs than anticipated in August, but rose from a sharply revised July figure, according to Labor Department data that could factor into the Federal Reserve’s next policy decisions. Nonfarm payrolls came in at 142,000 last month, up from a heavily downwardly-revised mark of 89,000 in July. Economists had called for a reading of 164,000, up from the initial July mark of 114,000. Friday’s release also showed the US unemployment rate at 4.2%, compared to July’s figure of 4.3%. The level was in line with estimates. On a monthly basis, average hourly earnings growth also ticked up to 0.4% after contracting by 0.1% in July.

This softness in the labour market is enough to give the Fed cover to ease up on monetary policy, but we do not currently see signs of recession that would necessitate a significant number of cuts,” Jefferies said in a note, reiterating its call for the Fed to cut rates by 25 basis point later this month.

Meanwhile, the rate-sensitive 2-year Treasury yield sold off and its 10-year counterpart retraced earlier losses. That contributed to a steepening of the yield curve, which is once again positive. Yields typically move inversely to prices.

Fed Governor Christopher Waller said on Friday “the time has come” for the U.S. central bank to begin a series of interest rate cuts, adding he is open-minded about the size and pace.

Shares in Broadcom slumped by more than 10% in early US trading after the group’s current-quarter sales guidance slightly disappointed investors’ expectations. By 10:52 ET (14:52 GMT), shares had dropped 10%. The firm projected that it would deliver $14 billion in revenue in its fourth quarter, just under estimates of $14.04 billion, according to LSEG data cited by Reuters. The forecast was seen as a sign of possible sluggishness in the company’s non-AI-related operations. The AI segments, however, remained strong, Broadcom said. The firm once again raised its outlook for full-year sales of AI parts and custom chips to $12 billion, up from its prior forecast of more than $11 billion during the period.