The July US employment report showed nonfarm payrolls unexpectedly fell by 23,000 from the previous month, leading markets to scale back expectations that the Federal Reserve would proceed with a rate hike in September. Figures for May and June were also revised sharply lower, causing the average pace of gains over the past three months to decelerate abruptly from the previously reported 110,000 to just 20,000. While the unemployment rate improved to 4.1 percent, this is seen as a result of a shrinking labor force due to the Trump administration's immigration curbs, prompting major financial institutions to say it is not good news. Meanwhile, persistent concerns over rising inflation amid the US-Iran conflict leave the Fed facing a difficult policy decision, caught between price stability and maximum employment.
Weak jobs report reduces odds of September rate hike, lowering expected policy rate.
Reduced rate hike expectations lead to lower yields.
