Stocks struggle for direction as US jobs data fails to give assurance

US stocks are struggling to pick a direction after the US August jobs report. The reading gave a mixed picture of the health of the labour market, with another month of weaker job growth than anticipated, but an unexpected rise in wages. 

S&P 500 4-hour chart

Past performance is not a reliable indicator of future results.

Average hourly earnings rose 0.4% in August despite a downward revision which saw wages contract 0.1% in July. On a yearly basis, wages came in at 3.8%, a rise from 3.6% in the previous month and above expectations of 3.7%.

This means the data is slightly inconclusive as to whether it pushes the Federal Reserve to take stronger actions when it starts cutting – supposedly - in September.  Interestingly, despite the higher wage data, a factor the Fed has pointed out in the past as a sticky area of inflationary pressures, markets are pricing in a higher chance of a 50bps cut this month that before the data release. The current pricing shows a 57/43 split in favour of 50bps, versus 59/41 in favour of 25bps before the jobs data came out. The softer headline NFP data may be the main reason behind this sense of confidence in the Fed’s desire to cut rates aggressively. 

The next key event on the calendar before the FOMC meeting on the 19th will be the US CPI data for august, released on Wednesday next week. Forecast show an expected drop to what would be the lowest level since April 2021 if confirmed. If so, then we could see pricing of a 50bps become more aggressive, giving risk appetite a boost, and weighing on the dollar and yields.

For now, traders seem a little lost for direction, with the S&P 500 seeing a small boost following the data, but unable to break the pattern of descending highs seen over the past few sessions.