What Are Warsh and Bessent Really Up To? See This Jobs Data

US jobs data looms large as traders try to figure out what tough talk from Kevin Warsh and scare tactics from Scott Bessent really mean for markets.

• The strongest services survey since February should have hardened the case for tightening, and rate hike bets did not move
• Long-dated bonds stopped at the same floor officials have now defended since late July
• The yen jumped roughly 3%, matching the size of earlier intervention moves, and no authority has owned it

Something changed overnight, and it turned major markets everywhere at once. The bellwether S&P 500 posted the largest one-day rally in a month, with the tech-heavy Nasdaq 100 climbing convincingly alongside it. Long-dated Treasury bonds rose from the range floor they’ve held since late July. Gold snapped back to erase the losses it suffered earlier in the week when a crude oil surge revived inflation worries, and the US dollar slipped against most major currencies.

That combination implies an obvious explanation. Stocks up, bonds up, gold up and the dollar down is what relief on the interest rate front looks like: risk appetite returns, a metal that yields nothing becomes easier to own, and the greenback loses some of its yield advantage. It all lines up. The trouble is that nothing happened to deliver that relief.

The data argued the other way

Start with oil, the would-be driver of near-term inflation fears. Crude rushed higher at the start of week and has not turned back, edging up to the three-month high instead. What’s more, breakeven inflation rates have started tracking oil prices again having ignored them in July and most of August, huddling at pre-war lows even as crude trended higher. They’ve now recoupled, meaning that rising prices ought to beckon a more hawkish central bank.

The economic news was no help either. Service sector purchasing managers index (PMI) data from the Institute for Supply Management (ISM) delivered the fastest growth since February, comfortably beating forecasts. Business activity accelerated, new orders surged, and the survey’s price measures surged with them. Such data make the textbook case for tightening, painting a picture of precisely the economy that troubles Fed Chair Kevin Warsh when he talks up restoring price stability.

Rate expectations barely budged, despite the news flow seemingly lining up neatly with the hawkish message in Warsh’s Jackson Hole speech that markets readily onboarded. The Fed chief talked up the odds of one hike by year-end from just over 70% to 90% and the chance of two of them from 30% to better than even. Handed a red-hot ISM report and buoyant oil price, traders seemed to look the other way.

The level markets are afraid to test

Explaining what transpired seems to start with the bond market. The 30-year has now bounced from the same floor repeatedly since late July, when the Treasury first signaled it disliked the direction of long-term yields. That signal came through a joint intervention with Japanese authorities to support the yen, structured so Tokyo could buy its currency without selling dollar assets. Japan imports nearly all its food and energy, which makes a weak yen a major cost-of-living problem. US authorities pointedly stepped in to ensure that taking pressure off the currency wouldn’t mean driving up US borrowing costs.

When markets probed the same level again, Treasury Secretary Scott Bessent doubled the size of bond buyback operations from $2 to $4 billion. That sum changes nothing mechanically in a market this size, and it was likely never meant to. Bessent himself spoke of the move as signaling in a CNBC interview. Now bonds have bounced from the range bottom anew, and again the yen spiked in tandem. The scale of the jump seems comparable to earlier interventions, though this time no authority on either side of the Pacific has claimed it.

All eyes on US jobs data

Whether anyone actually intervened may not matter. Markets who have watched the Treasury step in to prop up the 30-year bond at the same level twice are unlikely to want to be on the wrong side of that happening a third time. They may have backed away from that level on their own, and once they did, the appearance of rate relief spread into gold, equities and the dollar without any policy official having to lift a finger.

That leaves the incoming US jobs report as the next big test. Forecasters expect 56,000 jobs added in August after the prior month’s 23,000 decline, with the unemployment rate steady at 4.1%. A strong print will ask whether traders are ready to pile into rate hike bets or shrug again because the Treasury is muddying the reaction function. A soft one might line up with what officials seem to want, extending the move already underway. Watching which way the markets jump will reveal what is genuinely steering them, the state of the economy or the shadow of an intervention.

Ilya Spivak, tastylive Head of Global Macro, has over 15 years of experience in trading strategy. He specializes in identifying thematic moves in currencies, commodities, interest rates and equities. He hosts Macro Money and co-hosts Overtime, Monday-Thursday. @Ilyaspivak

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