U.S. nonfarm payrolls increased by 162,000 in August, roughly triple the expected figure, indicating continued resilience in the labor market. The probability of a Federal Reserve rate hike in September has risen to approximately 60%.
U.S. Treasury yields rose broadly, and U.S. equities closed lower, though weekly gains were maintained. AI infrastructure investment and credit expansion continue to support the economy, with markets now focusing on next week's CPI data to gauge the Federal Reserve's policy path.
U.S. non-farm payroll data for August significantly exceeded expectations, further widening market分歧 regarding the Federal Reserve's policy direction in September. Robust job growth demonstrates the continued resilience of the U.S. economy and has led markets to revise up their expectations for Fed rate hikes. U.S. stocks fell on Friday, Treasury yields rose broadly, and gold came under pressure.
Data released by the U.S. Department of Labor on Friday showed that non-farm payrolls increased by 162,000 in August, approximately three times the consensus estimate among economists. The stronger-than-expected employment performance indicates that the labor market has not deteriorated as sharply as previously feared, complicating the Fed's policy trade-off between employment and inflation.
The federal funds futures market indicates that the probability of a rate hike at the Federal Reserve's meeting on September 16 has risen to approximately 60%. Previously, Fed Governor Waller signaled a preference for keeping interest rates unchanged, which had temporarily reduced market bets on a September rate hike.
Market sentiment subsequently shifted toward a hawkish stance. All three major U.S. stock indices closed lower on Friday, while U.S. Treasury yields rose broadly. However, on a weekly basis, both the S&P 500 Index and the Nasdaq 100 Index still posted gains, suggesting that the market adjustment triggered by the employment data remains relatively limited so far.
U.S. Treasury yields rose across the board, but risk assets have not yet come under significant pressure.
Following the release of the employment data, U.S. Treasuries were sold off, pushing yields higher across all maturities.
Among them, the segment most sensitive to monetary policy$U.S. 2-Year Treasury Notes Yield (US2Y.BD)$rose by 3.4 basis points to 4.3703%, reaching an intraday high of 4.416%, the highest level since January 2025;$U.S. 10-Year Treasury Notes Yield (US10Y.BD)$increased by 2.2 basis points to 4.782%; the yield on 30-year U.S. Treasury bonds edged up by 0.3 basis points to 5.246%.
However, the transmission of this round of bond market volatility to other risk assets remains limited. Credit spreads remain at low levels, and the cost of downside protection for risk assets is also relatively contained. JPMorgan pointed out that while liquidity in the U.S. Treasury market has deteriorated significantly, similar pressures have not yet emerged in stock index futures or corporate bond ETFs.
Collin Martin, Head of Fixed Income Research and Strategy at Charles Schwab, stated that financial conditions remain accommodative, with credit spreads still at unusually tight levels. Meanwhile, corporate earnings have grown by more than 20% year-over-year, suggesting that current corporate financing costs have not yet imposed significant pressure on businesses.
This implies that although the employment data has pushed up interest rate expectations, the impact of higher rates on corporate financing and risk assets has not yet fully materialized.
The AI investment boom provides support, while employment structures show divergence.
The current resilience of the U.S. economy is also linked to the sustained surge in AI infrastructure investment.
Brad Conger, Chief Investment Officer at Hirtle & Co., stated that the contours of the "AI substitution effect" are already faintly visible in the August employment data: the financial activities and information sectors collectively lost 34,000 jobs, whereas employment performance was stronger in industries related to data center construction, equipment supply, and power infrastructure, such as construction, manufacturing, and utilities.
Economists at BNP Paribas noted in a client report that this employment report indicates the U.S. economy remains in a cyclical expansion phase, supported significantly by accommodative policies and the boom in AI infrastructure construction. With labor supply constrained, the unemployment rate may continue to decline, and wages face upward pressure.
Meanwhile, high financing costs have not yet significantly suppressed credit expansion. JPMorgan found that although borrowing costs have risen, the scale of U.S. lending and money creation has not contracted in tandem; bank loans continue to grow, and net issuance of U.S. investment-grade corporate bonds also increased in August.
Therefore, the U.S. economy is not currently facing the typical scenario of "high interest rates suppressing demand." Although corporate financing costs have risen, credit activity and investment demand have maintained a certain level of growth. This is one of the reasons why risk assets did not undergo more severe adjustments in the face of hawkish employment data.
Expectations of rate hikes intensify, with CPI becoming the next key validation point.
The non-farm payrolls data was markedly hawkish, but it is insufficient to fully determine the Federal Reserve's next policy path. The market will now shift greater attention to inflation data.
Dan Suzuki, Global Investment Strategist at iCapital, warned that if interest rates rise further and significantly, it could force investors to more aggressively reduce risk exposure and further deteriorate market sentiment.
Sarah Hunt, Chief Market Strategist at Alpine Saxon Woods, stated that compared to a weaker employment report, this employment data offers limited policy basis for dovish interpretations.
Marvin Loh, Senior Macro Strategist at State Street, pointed out that Friday's employment report once again demonstrated that the U.S. economy remains robust, even in the absence of structural conditions that would lower the unemployment rate. He believes the market is sending a signal to Waller that "interest rates should be raised," and he still expects the Federal Reserve to hike rates within this year.
Greg Boutle, Head of U.S. Equity and Derivatives Strategy at BNP Paribas, stated that with the earnings season largely concluded, macroeconomic data will become a key variable influencing the market in the coming weeks. He believes it is appropriate to adopt a more cautious stance on equities at present, but it is not yet time to turn explicitly bearish.
In his view, although Friday's non-farm payrolls data was slightly hawkish, it did not fully clarify the Federal Reserve's next policy direction. The most critical variables going forward are the CPI data to be released next week and whether the Fed will choose to raise interest rates before the U.S. midterm elections.
Editor/melody