August 7: Soft Jobs Lift Risk Assets

Research evidence excerpt

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Update

August 7, 2026 09:30 PM GMT

Global Macro Commentary | Global

Morgan Stanley & Co. LLC

Molly Nickolin

Strategist

August 7: Soft Jobs Lift Risk

Assets

Lingdi Xu

Economist

Sofia Palacios

Strategist

US payrolls unexpectedly decline in July; Fed hike pricing

recedes; Treasuries bull-steepen; USD weakens broadly; gold

rallies; EM FX strengthens; DXY at 99.62 (-0.3%); US 10y at 4.65

(-3.2bp).

Weak US labor data reduced near-term Fed tightening expectations, supporting a

front-end-led Treasury rally, broad USD weakness, and a risk-on move across

equities and EM currencies.

Developed Markets

• US rates bull-steepen (2y: -5.0bp; 30y: -2.3bp) after July nonfarm payrolls

unexpectedly decline by 23k, versus expectations for an increase, while

the prior two months are revised lower by a net 103k. The unemployment

rate nevertheless falls to 4.1%, reflecting in part a decline in labor-force

Morgan Stanley Asia Limited+

Gek Teng Khoo

Strategist

Morgan Stanley MUFG Securities Co., Ltd.+

Hiromu Uezato

Strategist

Morgan Stanley Asia Limited+

Luyao Liu

Strategist

Morgan Stanley & Co. International plc+

Jasper Knyphausen

Strategist

participation and leaving a mixed signal for the Fed. Market participants

reduce expectations for near-term tightening, with the front end and belly

leading the Treasury rally and the 10y yield falling 3.2bp to 4.65%. The initial

rally later pares as investors assess whether weakness in government and

leisure-related employment partly reflects seasonal distortions. Fed officials

remain divided over the appropriate policy path, leaving upcoming inflation

data as an important input into the September decision.

• US equities rise alongside lower yields, with growth-sensitive sectors

outperforming and energy lagging (S&P 500: +0.6%; NASDAQ: +1.3%; IT:

+1.3%; Consumer Discretionary: +1.3%; Energy: -1.2%). The softer payroll

print reduces immediate pressure on the Fed to tighten further, supporting

duration-sensitive equities even as the unemployment rate remains low.

Materials lead sector gains (+1.5%), while health care rises 0.8% and

financials decline 0.3%.…