Odds of an October rate hold surge to 82%
U.S. September jobs data came in far below market expectations, pushing up the probability that the U.S. central bank (the Fed) will keep its benchmark rate at current levels in October from 76% to 82% in a single day. Bets on further rate hikes also retreated. In the rate futures market, the odds of a hike in October exceeded 25% before the jobs report was released but fell below 20% afterward. Still, the probability of a hike in December remains priced in at close to 90%.
What lifted stocks was the September employment report released before the market open. According to the report from the U.S. Labor Department, nonfarm payrolls grew by just 29,000 from the previous month, falling short of forecasts. The unemployment rate rose from 4.1% to 4.2%, and average hourly earnings rose only 0.1%.
Wall Street opened higher on Friday (local time). Falling Treasury yields and stabilizing oil prices buoyed investor sentiment. Around 10 a.m. at the New York Stock Exchange, the Dow Jones Industrial Average was up roughly 0.4% from the previous session, while the S&P 500 rose 0.8% and the Nasdaq Composite climbed 1.4%. Nvidia, CrowdStrike, Palo Alto Networks, and AMD hit all-time intraday highs, and Intel gained more than 3%.
Treasury yields dropped quickly right after the jobs report. The 10-year yield was moving around 5.20%, down more than 3 basis points from the previous day, while the 2-year yield fell to around 4.75%. Declining oil prices also supported sentiment. Brent crude futures fell more than 2% to below $100 a barrel, while West Texas Intermediate (WTI) traded around $89, down about 4%.
Seema Shah, chief global strategist at Principal Asset Management, said that weak job gains, slowing wage growth, and a higher unemployment rate all show that the labor market is cooling rather than heating up again. Jeff Schulz, head of market and economic strategy at Franklin Templeton Research, added that "today's weak jobs report strengthens the case for the Fed to hold rates at its October meeting."
Bret Kenwell, U.S. investment analyst at eToro, noted that if the 10-year yield fails to come down below 5%, expectations that markets can withstand high rates without major shocks could be shaken, and pointed to the 5% level on the 10-year as the key benchmark going forward. Lindsay Rosner, head of fixed income investing at Goldman Sachs Asset Management, said that "one additional hike in December remains our base case," adding that if energy prices continue to rise, the Fed cannot be entirely ruled out from acting this month.
