Dollar Dips, Yields Drop: NFP Sets Market in Motion

The latest Nonfarm Payrolls report revealed a gain of 150,000 jobs, falling short of the anticipated 180,000. This marks a notable drop from September’s impressive increase of 297,000.

Health care led the sectors with 58,000 new jobs, closely followed by government (51,000), construction (23,000), and social assistance (19,000). However, manufacturing saw a decline of 35,000 jobs, largely attributed to auto strikes. The unemployment rate ticked up to 3.9%, the highest since January 2022, partly due to a dip in household employment. Additionally, the report highlighted a concerning trend in wage growth, hitting a 2.5-year low, hinting at a softening labour market.

These numbers prompted a market reaction. Risk-on traders responded to the slower job growth by driving the U.S. dollar to a six-week low and pushing 10-year U.S. Treasury yields to five-week lows. As a result, risk assets like the S&P500 Futures gained 93 basis points, concluding five consecutive days of gains. Safe haven traders also shifted, favouring gold, which saw a 33 basis point increase in Friday’s trading session.

The revisions in the August and September employment figures indicated an aggregate decrease of 101,000 jobs from previous reports. This shift in the labour market dynamics comes at a crucial time, as a robust job market can lead to inflationary pressures. The market’s response to the Nonfarm Payrolls report suggests a preference for a more tempered approach, balancing growth with stability. Currently, market expectations for a rate hike stand at 9.6%, significantly lower than the 24.6% from just a week ago. This evolving sentiment underscores the relationship between employment data, monetary policy, and market dynamics, showcasing how shifts in the labour market can reverberate across various financial instruments.

Sources: U.S. Bureau of Economic Analysis, U.S. Bureau Of Labor Statistics, CME, Reuters, TradingView

Piece Written by Nkosilathi Dube, Trive Financial Market Analyst

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