✂️ Snip, snip, America

What’s going on here?

The US job market played it cool in August, producing data that left the market guessing about the size of the Federal Reserve’s (Fed’s) next move.

What does this mean?

Nonfarm payrolls take stock of employment levels in the US every month, excluding a few industries like farming. This time, they were decent – but only just. The US created 142,000 new jobs, easily higher than July’s 89,000 but lower than the 161,000 the number crunchers had predicted. Plus, the US Labor Department revised July’s numbers – which were already low enough to scare investors away from US markets – downward by 25,000 jobs. But unemployment figures softened the blow, easing from July’s 4.3% to 4.2% as predicted, while the average hourly wage was a better-than-expected 3.8% higher than last year.

Why should I care?

For markets: The financial equivalent of a double espresso.

The Fed is most likely to cut interest rates if the economy is struggling while inflation is, for the most part, under control. So the US economy could soon feel the effects of lower interest rates. Cheaper borrowing costs would spur on businesses and individual spenders. Plus, lower rates would make savings accounts less lucrative, so Americans could be tempted to take their cash out of piggy banks and into the stock market.

The bigger picture: Alexa, play “Too Little, Too Late” by JoJo.

Traders are pretty sure that the Fed will cut its key rate when it meets later this month. The question is by how much: 0.25 or 0.5 percentage points. They’re also predicting more than eight cuts before the end of next year. But investors are worried that the central bank has left rates too high for too long, putting too much pressure on companies and the broader economy. And they’re not just practicing their “I told you so”s, they’ve been ditching stocks in anticipation.

What’s going on here?

Major US companies like Uber raised record-breaking debt this week, racing to make their mark before the next president does.

What does this mean?

Bonds are the formal version of asking a pal to spot you. Companies sell them to line their coffers quickly. And in return for buying those bonds, investors are paid interest until they get their capital back. Right now, that’s exactly what businesses need. See, they’re worried about the US election: if the next president hikes tariffs and taxes, that could push up inflation and, in turn, interest rates. So in a bid to bring expensive projects forward, companies are selling bonds – and fast. Almost 50 US companies raised a combined $80 billion through bonds this week, with the first $72 billion pulled in during a record-breaking two days.

Why should I care?

For markets: Your perception shapes your reality.

That’s the sort of frenzy you’d only expect after a serious interest rate cut. After all, lower rates make it easier for companies to keep up with interest payments on their debt. Thing is, traders are already expecting the Federal Reserve to start slashing rates, so they’ve priced opportunities as if we’re a few cuts deep – even though rates haven’t been so much as kissed with scissors. That’s a self-fulfilling prophecy. By assuming lower rates, traders have effectively slashed borrowing costs themselves: rates for credit-worthy companies have dropped to a two-year low of 4.8%.

The bigger picture: The corporate world isn't all bad.

Interest rate cuts are a buoy for bonds. Their prices rise as interest rates fall, padding out the portfolios of the investors who own them. And corporate bonds are especially attractive since they hand out higher returns than government bonds do. On top of that, lower rates make it cheaper for companies to borrow money. And because that bolsters their financial security, investors feel more confident lending them money by buying their bonds.