Hiring Slowed In August. Bond Yields Rose Anyway.

Private employers added just 38,000 jobs in August, the smallest gain since January and well short of what economists expected. On most days a hiring slowdown like that would push interest rates down, on the logic that a cooling economy needs cheaper money; instead, government bond yields kept climbing, with the 10-year Treasury note near its highest level in years. That tension, a weakening job market and rising borrowing costs at the same time, is the box the Federal Reserve finds itself in two weeks before its next decision.

Fast Facts

• A federal judge rejected the Justice Department's bid to force Google to sell its ad-exchange business, sparing Alphabet a breakup after an earlier finding that the company had illegally monopolized ad-technology markets (Read More)
• Uber said it will cut about 10% of its workforce as the ride-hailing company pushes to move "simpler and faster" (Read More)
• Shares of turbine blade and vane makers fell after Elon Musk said he wants to build power-turbine components himself (Read More)
• OpenAI and Anthropic are each working to reassure Wall Street and regulators as both weigh potentially record-breaking IPOs (Read More)
• Chevron said it will roughly double its oil production in Venezuela through a $7 billion investment (Read More)
• Ford's U.S. new-vehicle sales fell 10.3% in August, an eighth straight month of year-over-year declines (Read More)

Global News

• The Bank of Canada held its key interest rate steady as it weighed the economic fallout from U.S. tariffs (Read More)
• Japan's government said it would keep a close watch on the yen, warning that a weak currency is fueling inflation fears (Read More)
• China's Xi Jinping kept Iran's president at arm's length at a regional summit, weeks before a planned meeting with President Trump (Read More)
• BP formally appointed Ian Tyler as chair after a boardroom upheaval that saw its previous chairman dismissed (Read More)

A Soft Jobs Report Runs Straight Into Rising Rates

The report came from ADP, a large payroll processor whose monthly count of private-sector hiring lands a few days before the government's official jobs numbers. It said private employers added those 38,000 jobs almost entirely in services, while goods-producing industries actually shed workers, the kind of split that tends to show up as hiring cools. A healthy month in this economy has often meant a figure several times that size, so 38,000 is the kind of number that gets the Federal Reserve's attention. The government's own August employment report is due in a few days and will either confirm the slowdown or complicate it.

Normally a soft jobs report does one clean thing to markets. It raises the odds that the Fed cuts interest rates to support hiring, and bond yields fall. That did not happen this time. The yield on the 10-year Treasury note, the rate the federal government pays to borrow for ten years, stood at 4.79% as of the September 1 close, near its highest in years, while stocks mostly shrugged and edged higher.

The reason those two signals point in opposite directions is that the Fed is being pulled by two forces at once. A weakening job market argues for lower rates; oil above $90 a barrel and a broad rise in inflation expectations argue for holding rates high, or even raising them, to keep prices in check. New York Fed President John Williams added a third wrinkle, saying the recent jump in yields reflects a strong economy and heavy investment in artificial intelligence rather than any sign of market trouble. When the people who set rates cannot yet agree on whether the economy is slowing or running hot, the honest thing to say is that the September decision is genuinely uncertain.

This is not an abstraction for anyone shopping for a house. Long-term mortgage rates are built on top of the 10-year Treasury yield, so a move up in that yield tends to pull the cost of a new 30-year home loan up with it, rather than down the way a weak jobs report alone might suggest. A cooling job market and a more expensive mortgage are a hard pairing for a household, and they are arriving together. That is the tension the Fed has two weeks to weigh.

Sources: CNBC on the ADP report · MarketWatch on hiring

Broadcom's After-Close Report Is The Day's Real AI Test

The biggest scheduled event of the day arrives after the closing bell, when Broadcom reports its latest quarterly results. Broadcom is one of the largest companies in the market, worth well over a trillion dollars, and it has become a bellwether for the artificial-intelligence boom because it designs the custom chips that big technology companies use to build their AI systems. Investors are not really waiting to see whether it beats the profit estimate, which calls for a sharp jump in earnings from a year earlier that analysts largely expect it to clear.

What will actually move the stock is what the company says about the road ahead, specifically how fast its custom AI-chip revenue is growing and what its chief executive signals about demand into next year. That growth story is what has justified Broadcom's price, so a quarter that muddies it would matter more than a small miss or beat on the bottom line. The report also lands in an uncomfortable week for expensive technology stocks, which are contending with the rising bond yields described above, because higher yields make the far-off profits that richly valued companies promise worth a little less today.

The reason this reaches beyond traders is the same one that made Nvidia's chip deal matter earlier this week: a handful of AI-linked companies now make up an outsized share of the U.S. stock market, and so of the retirement and index funds many people hold without tracking the individual names. When one of the biggest of them reports, the result ripples through those funds whether or not anyone owns the stock directly. The useful thing is to know what the market is actually watching, which is the growth outlook rather than the headline profit number.

Sources: WSJ · Investing.com

The Gulf Escalation Widened Again, And Bond Markets Felt It

The escalation between the United States and Iran that we covered in the last two briefings widened once more. Iran said naval mines struck two tankers in the Strait of Hormuz, the Persian Gulf shipping lane that carries a large share of the world's oil, and it launched retaliatory strikes on U.S.-linked targets in Kuwait, Jordan and Bahrain. Oil stayed elevated, with Brent crude, the international benchmark, hovering near $95 a barrel and European natural gas reaching its highest level since the end of 2022.

What is new is that the conflict is broadening across the Gulf rather than cooling, and markets are still feeling it mainly through the cost of borrowing, the thread that has run through this whole week. No barrels of oil actually stopped flowing; the U.S. Energy Secretary said more than 17 million barrels passed through Hormuz on Monday alone. What moved was the perceived risk to that flow, and oil and bonds are priced on what people expect next, not only on what is true today.

Sources: CNBC on the strikes · WSJ on markets · WSJ on European gas · Rapunzl, our Sept 1 briefing

What To Watch

The figures below are analysts' average estimates for earnings per share, not results, and the actual numbers can land well above or below them.

Reporting today:

• Broadcom (AVGO) is expected to report after the close, with an estimate of $2.83 per share against $1.26 a year ago; the featured story above explains what actually matters in it.
• Snowflake (SNOW) is expected to report after the close, with an expected loss of $0.51 against a $0.80 loss a year ago.
• Hewlett Packard Enterprise (HPE) is expected to report after the close, at $0.82 against $0.35 a year ago.
• NetApp (NTAP) is expected to report after the close, at $1.72 against $1.19 a year ago.
• Five Below (FIVE) is expected to report after the close, at $1.34 against $0.81 a year ago.
• Brown-Forman (BF.B) is expected to report before the open, at $0.38 against $0.36 a year ago.

Also on the calendar:

• The Federal Reserve's Beige Book, a survey of business conditions across its regional districts, is expected at 2:00 p.m. ET today.
• Fed Governor Christopher Waller is expected to speak on the economic outlook on September 3, and the government's monthly international trade report is expected the same day.
• The Fed's next interest-rate meeting is scheduled for September 15 and 16, with a press conference expected at 2:30 p.m. on the 16th.