Weak US Jobs Data Shifts Fed Rate Hike Expectations

The latest US Nonfarm Payrolls report shocked markets with a significant slowdown in job growth, rising by just 29,000 in September, far below the expected 90,000. The unemployment rate ticked up to 4.2%, and revisions showed even weaker job growth in previous months. This data dramatically shifted expectations for a Federal Reserve rate hike in October, with probabilities dropping from near 70% to around 22%.

Markets initially reacted with a drop in Treasury yields, a weaker US Dollar Index, and gains in gold, Bitcoin, and US equities. However, Treasury yields quickly rebounded, complicating the reaction. Gold and Bitcoin retreated from their highs, while the S&P 500 held onto some gains, suggesting equities may benefit from lower rate-hike expectations, at least for now.

The US Dollar Index fell to around 101.66 before recovering slightly, remaining below pre-NFP levels. EURUSD and GBPUSD could see further upside if dollar selling resumes. Meanwhile, gold found brief support from lower rate expectations but faced pressure from rebounding yields, leaving it caught between competing forces.

US equities responded positively, with the S&P 500 climbing above 7,750 before settling near 7,720. The Nasdaq also gained around 1.2%. However, the reaction may reverse if long-term Treasury yields surge again. Bitcoin, which initially rallied, gave back its gains, highlighting the uncertainty around easier Fed expectations.