We’re ready

The unemployment report published yesterday was indeed bad enough for the market to interpret that the Fed will lower rates in the next meeting. The report showed for example that most job gains were part time workers, which tells us companies are not confident in the near future to hire permanently. It also showed the number of people not in the labor force but willing to work and not finding a job is growing, which combined with the lack of job openings provide a grim picture for the job market, even though on the surface, it looks like we have full employment. The bond market, the chief in these cases reacted to the report with conviction, and as you can see in the chart below, the 2 year Treasury, the most sensible one to oficial rates changes, took a nose dive to 3.5%, which implies 100 bps lower rates from today. The odds for a cut at the September meeting are now 100%, 91% for 25 bps and 9% for a 50 bp cut. The U.S. dollar index traded lower, but not meaningfully, and equity indices were flat. Gold and silver are trading at new all time highs. Absent other surprises, it seems we will get a boost from the Fed in two weeks.

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