- Employers in the US hired only 29,000 new workers in September.
- Traders are pricing an 86% chance the Fed will pause this month.
- Market participants are awaiting the FOMC meeting minutes.
Equities soared on Monday, continuing Friday’s move as investors cheered a decline in Fed rate hike expectations. The tech sector shone with stocks like Nvidia and Micron leading the rally. Market participants are now looking forward to the FOMC meeting minutes due on Wednesday for more cues on future policy moves.
S&P 500 (Source: Bloomberg)
The US released its crucial US non-farm payrolls report on Friday, showing an unexpected slowdown in employment. Employers hired only 29,000 new workers in September. Economists had expected an addition of 89,000 jobs. At the same time, the unemployment rate came in at 4.2% compared to the forecast of 4.1%.
The downbeat data led to a repricing of Fed rate hike expectations. Initially, inflation worries had increased the likelihood of a hike in October, sending equities lower. However, after the data, traders were pricing an 86% chance of a pause this month.
“For the Fed, this number should be the nail in the coffin for an October hike,” Thomas Simons, chief US economist at Jefferies, said in a note.
“The payroll data surged in August, and we had expected the momentum to continue this month, given the historically low prints on jobless claims in recent weeks,” he added. “However, it now appears that the August number was nothing more than a rebound from very weak hiring in June and July.”
The decline in rate hike expectations sent yields lower while stocks rebounded. Before the data, geopolitical tensions had sent yields to multi-decade highs. Tensions in the Middle East have significantly tightened the oil market, causing inflation worries around the globe. As a result, rate hike bets were rising while growth stocks were declining. High interest rates hurt large cap stocks, especially in the tech sector that depend heavily on borrowing.
Friday’s drop in rate hike expectations allowed stocks like Nvidia and Micron to rally, boosting equities. Market participants are now awaiting the FOMC meeting minutes for more clues on future moves. Although the Fed will likely pause this month, traders still expect a hike in December. The conflict between the US and Iran has paused briefly. However, after failing to reach an agreement, Trump said he would get back to bombing Iran after the US midterm elections.