Global Stock Markets Recover from US 'Employment Shock'

Focus on September rate cut possibility, Wall Street index futures on the rise

Japanese stocks fall due to concerns over yen appreciation

After US stocks plunged on the 4th (local time) due to shocking job deterioration, stock index futures rebounded as investors focused on the increased likelihood of a rate cut in September.

In early Eastern Standard Time trading, S&P 500 futures rose 0.55%, Nasdaq 100 futures gained 0.6%, while Dow futures climbed 0.5%. Following the jobs report release last Friday, the three major indices had plummeted 1.6%~2.2%.

With the increased probability of a September rate cut, the 2-year bond yield, which had dropped 25 basis points (1bp=0.01%) in a single day on Friday to 3.704%, rebounded by 2.5bp to 3.729% this day. Bond yields and bond prices move in opposite directions. Short-term government bonds are more sensitive to policy rates.

The 10-year bond yield, which stood at 4.220% the previous day, rose 3.3 basis points (1bp=0.01%) to close at 4.253%.

As employment conditions worsened far beyond expectations, the outlook for a rate cut soared in the rate swap market, triggering a buying spree in bonds. According to CME Group's FedWatch tool, interest rate swap traders raised their bets on a rate cut at the September meeting of the Federal Reserve from the 60% range to over 80%.

On the back of anticipations for a US rate cut, global equities advanced.

After plunging 3.88% last Friday due to changes in major shareholder requirements, Korea's KOSPI rebounded by 0.9%. Hong Kong's Hang Seng Index gained 0.9%, and Shanghai's CSI 300 rose 0.39%. On the other hand, Japan's Nikkei 225 dropped 1.25% due to concerns about yen appreciation stemming from expectations of a US rate cut.

The Stoxx 600, which covers major companies across Europe, rose 0.6% shortly after the open.

After the release of the jobs data, the dollar, which had plunged 2.3% against the major six currencies in a day, recovered 0.4% against the yen to stand at 148 yen per dollar.

Alongside the yen, the Swiss franc, considered a safe haven asset, which tumbled after President Trump imposed a 39% tariff, rebounded 0.6% to partially recover.

According to the US Bureau of Labor Statistics (BLS) jobs report last Friday, employment in the US increased by 73,000 in July. However, figures for May and June were revised down by about 258,000, bringing the average monthly employment gain for the past three months to just 35,000.

This marks the worst employment growth since the pandemic and suggests a sharp slowdown in hiring since Trump's inauguration. The US had maintained around 230,000 new jobs per month over the past two to three years.

Meanwhile, President Donald Trump stated that he would dismiss the head of the Bureau of Labor Statistics over the jobs data, raising concerns about the credibility of US economic statistics. In addition, as Trump is expected to soon appoint a successor to Federal Reserve Governor Adriana Kugler, who has announced her intention to resign, concerns are also rising over the politicization of Federal Reserve rate policy.

Priya Misra, a portfolio manager at J.P. Morgan Asset Management, said in an interview with Bloomberg that "the July jobs report clearly raises the likelihood of a September rate cut, but the risk of inflation rising due to higher effective tariff rates still exists, so nothing is certain." She added, "Rising tension between weak employment and persistent inflation will make it more difficult for the Fed to decide the timing and pace of interest rate cuts."

Guest journalist Kim Jung-ah kja@hankyung.com