Disappointing Jobs Report Sends Rate Hike Expectations into Free Fall
The US Bureau of Labor Statistics released its September non-farm payrolls report on October 2, showing an increase in employment of only 29,000 jobs, far below the market expectation of 90,000. The unemployment rate rose to 4.2%, higher than the expected 4.1%, while average hourly earnings increased by just 0.1% month-on-month and 3.0% year-over-year.
The report also included downward revisions for July's non-farm payroll change from positive to negative (-10,000) and August's figure from 162,000 to 133,000, resulting in a combined downward revision of approximately 60,000 jobs for the two months.
Following the data release, market expectations for an October rate hike by the Federal Reserve plummeted. The asset reaction chain saw US Treasuries strengthen across the board, with the 2-year yield dropping about 9 basis points to 4.71% and the 10-year yield falling to around 5.16%. The USD/JPY pair dipped to 156.94, while spot gold rapidly rallied over $40 from around $4,181 to above $4,220.
Allianz Chief Economic Advisor El-Erian pointed out that the mere 29,000 increase in jobs, combined with the downward revisions of the previous two months, further reinforced the impact of recent remarks by Fed officials, significantly cooling market expectations for an October rate hike. Analyst Mike Zaccardi emphasized that 'the re-acceleration narrative suffered a heavy blow.'