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Equities and cryptos faltered Friday as traders tried to parse the US economy’s latest turn and what to expect from the Federal Reserve later this month.
Bitcoin lost 1.7% midway through the day’s trading session, pushing the largest cryptocurrency below $20,000 — a key resistance level. Ether was down 0.7%; the S&P 500 declined 0.6%; and the Nasdaq dropped a full 1%.
The US added 315,000 jobs last month, while the unemployment rate rose for the first time since January, a Labor Department report released Friday shows. Hourly wage increases in August eased slightly, coming in at 0.3% for the month.
“The headline NFP [nonfarm payrolls] figure was a little larger than expected at 315,000, which may have created that initial unease as a knockout report could have effectively paved the way for a 75 basis point rate hike this month,” said Craig Erlam, a senior market analyst at Oanda.
The Fed should be happy with the report, Erlam said, as lower-than-expected wage growth and increased labor participation suggest that inflationary pressures may be letting up. But, he added, investors should not count on a less than a 75 basis point interest rate hike yet.
“There’s been such an effort to put 75 basis points on the table in recent weeks, to change their mind on the back of this would seriously undermine their guidance in future,” Elram said. “If paired with another decent drop in inflation in a couple of weeks, more may be convinced.”
Futures markets now are calling for a 58% chance of a 75 basis point rate hike in September, which would mark the central bank’s third consecutive increase of that size, according to data from CME Group. The probability of a 50 basis point hike is 42%, according to CME.
Central bankers also are looking at manufacturing data, which on Thursday showed continued expansion for the 27th consecutive month, data from the Institute of Supply Management showed.
“The question for markets here is, at what point do investors begin to cheer the resilience of economic growth this year in the face of historically aggressive Fed policy tightening that is now beginning to show signs of being effective in capping and likely reducing inflation pressures?” Tom Essaye, founder of Sevens Report Research, wrote in a note Friday.
Essaye cautioned against investors taking positive economic reports too seriously. There is still a lot of uncertainty about what the future looks like, he added.
“There is a chance traders look past the near-term resilience and continue to expect policy to trigger a very nasty recession sometime down the road, but most of the indicators we follow, including the yield curve, point to a recession in the second half of 2023,” Essaye said.
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