Economy

After the Labor Department reported a gain of 254,000 jobs in September and a decline in the unemployment rate to 4.1%, traders of futures that settle to the Fed’s policy rate all but abandoned bets that the U.S. central bank will follow its half-point reduction last month with any more like-sized moves.”The expectation now would be for a Federal Reserve that treads far more cautiously in easing policy,” said Karl Schamotta, chief market strategist for Corpay. Rate futures are now pricing in quarter-point reductions at each of the next Fed meetings through the middle of next year, bringing the policy rate down to around 3.25%-3.5%. The policy rate is currently in the 4.75%-5.0% range. Prior to the jobs data traders had been pricing in at least one more half-point rate cut before the end of this year.  More

FED FUNDS FUTURES: Odds of a 25-bp cut at the Fed’s November meeting rose to 93% from around 71% before the data, according to LSEG calculations.COMMENTS: WASIF LATIF, PRESIDENT AND CHIEF INVESTMENT OFFICER, SARMAYA PARTNERS, PRINCETON, NEW JERSEY“This is definitely much stronger than what was expected. I think it’s catching quite a few people by surprise. It means that the 50-basis point rate cut that we already got – which was good for sort of psychology and in the overall sentiment; and the next rate cut might not need to be as big. The initial reactions are that yields are jumping, and the market is taking off some of the degree or the number of rate cuts off the table or pushing them further out. I think on the equity side, equity markets are still buoyant. It looks like they like this. So, it could be a case of good news is good news.”PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK”They were much stronger than expected and obviously it negates the fear of perhaps the economy moving to negative growth anytime soon… it basically tells us economic activity in the fourth quarter is likely to remain at a solid pace. The fact that you only had 13 cents rise in hourly wages is good news for the Fed. It’s a blowout report, so it’s a good surprise, but I also think it may now slow the pace of rate cuts.”GENE GOLDMAN, CHIEF INVESTMENT OFFICER, CETERA INVESTMENT MANAGEMENT, EL SEGUNDO, CA “The number was phenomenal. It came in well above expectations. The unemployment rate came down and it shows the economy is strong.” “The market is seeing good news as good news. This news today confirms that the economy is on solid footing. I’d view today’s initial move in stocks with a little bit of caution because the dollar is strengthening and bond yields are higher,” “All the data this week suggested the economy is strong. This puts a final nail in the coffin for the Fed to cut only 25 basis points.”“Another point that the market should be concerned about is that average hourly earnings increased by 0.4% m/m, which was enough to push y/y number to 4%, a five-month high.”KARL SCHAMOTTA, CHIEF MARKET STRATEGIST, CORPAY, TORONTO“Blockbuster payrolls report by any measure. I think a no-landing scenario for the U.S. economy has suddenly become far more plausible. This is a report that is beautiful on the headline level as well as the internals. You’re looking at a sustained rise in job creation over the last three months, the unemployment rate ratcheting down, the participation rate holding steady, all of which indicate that this is not a statistical aberration that might be washed out in coming months. So ultimately what this means is that Treasury yields are spiking across the front of the curve, rate cut expectations are being pulled back, and the expectation now would be for a Federal Reserve that treads far more cautiously in easing policy.”BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT,MENOMONEE FALLS, WISCONSIN “A pleasant surprise to the upside, but mentally the Fed isshaving about 68,000 from the headline payrolls number. This isbecause the Bureau of Labor Statistics has not yet revised theirnumbers from their latest benchmarking study. August payrollsare also the ones most often revised because there are all sortsof issues with people going back to school. “Despite the large upside surprise to the payrolls number,the aggregate weekly hours worked fell 0.1%. This could bebecause of Hurricane Helene, which wreaked havoc during thesurvey week.  “Unless we see a big downside surprise with the November1st report for October, the Fed will take this as a reason tocut only 25 bps.”GLEN SMITH, CHIEF INVESTMENT OFFICER, GDS WEALTH MANAGEMENT,FLOWER MOUND, TEXAS    “Friday’s jobs report was stronger-than-expected and thatgives the Federal Reserve flexibility to either cut interestrates by 25 basis points at their next meeting on November 7, ortake a pause and revisit a potential rate cut in December. Itwas still the right decision for the Fed to cut rates by adeeper 50 basis points in September, which was essentially aninsurance policy for the Fed to guard against any risk of adeterioration of the labor market, which had been slowing priorto Friday’s report.”    “The labor market data may become clouded over the next fewreports by a perfect storm of factors, such as the port strikeand the disruptions from Hurricane Helene. While these dataimpacts aren’t likely to change the Fed’s interest rate course,it may make it tougher for both central bankers and investors togauge accurately how the labor market is faring.”    “The stock market has been living up to October’s reputationof increased volatility, and we expect this choppiness tocontinue for the next few weeks as the market starts to navigatethe uncertainty surrounding the election, the Federal Reserve’snext move and corporate earnings reports.”LINDSAY ROSNER, HEAD OF MULTI-SECTOR INVESTING, GOLDMAN SACHSASSET MANAGEMENT (in emailed note) “Today’s data hit a grand slam with payrolls coming instrong, positive revisions, and unemployment falling. Theeconomy is heading into the post-season solidly. This is a beaton every aspect and the Fed must be smiling as they got theirbats out! This is a credit positive as the fundamentals of thiseconomy are on strong footing.”  More

NEW YORK (Reuters) – The dollar jumped to a seven-week high on Friday after data showed that employers added more jobs than expected in September, leading traders to pare bets that the Federal Reserve will cut rates again by 50 basis points at its November meeting.Nonfarm payrolls increased by 254,000 jobs last month. Economists polled by Reuters had forecast payrolls rising by 140,000 positions.The unemployment also unexpectedly slipped to 4.1% from 4.2% in August.It is a “blockbuster payrolls report by any measure. I think a no-landing scenario for the U.S. economy has suddenly become far more plausible,” said Karl Schamotta, chief market strategist at Corpay in Toronto.”Rate cut expectations are being pulled back and the expectation now would be for a Federal Reserve that treads far more cautiously in easing policy,” Schamotta said.Improving economic data and more hawkish comments from Fed Chair Jerome Powell on Monday, in which he pushed back against expectations of continuing jumbo-sized rate cuts, has led traders to reduce bets on a 50-basis-point reduction at the Fed’s Nov. 6-7 meeting. Those odds fell further after Friday’s data. Traders are now pricing in only a 10% chance of a 50-bps-rate cut, down from around 32% earlier on Friday, the CME Group’s (NASDAQ:CME) FedWatch Tool shows.The dollar index reached 102.64, the highest since Aug. 16, and the euro slipped to $1.0959, the lowest since Aug. 15.The dollar gained to 148.80 yen, the highest since Aug. 16. More

(Reuters) – Wall Street’s main indexes were set for a higher open on Friday after a crucial labor report eased concerns about a rapid cooldown in the jobs market, while investors remained vigilant for potential escalations in the Middle East conflict.A Labor Department report showed nonfarm payrolls rose 254,000 in September, more than the estimate of 140,000, according to economists Reuters polled. The unemployment rate dipped to 4.1% for the previous month, versus an estimate of 4.2%.Odds of a 25-basis-point reduction at the U.S. Federal Reserve’s November meeting rose to 85.5%, up from more than 71% before the data, according to the CME Group’s (NASDAQ:CME) FedWatch Tool.”For the economy, it means that a soft landing is happening. We continue to add jobs at a rapid clip and the unemployment rate continues to tick down,” said Ross Mayfield, investment strategist at Baird.”It means the Fed is unlikely to cut (by) 50 basis points in November or December, certainly, and maybe even take a pause in November.”Dow E-minis were up 204 points, or 0.48%, S&P 500 E-minis were up 40.25 points, or 0.70% and Nasdaq 100 E-minis were up 197.75 points, or 0.99%.Futures tracking the small-cap Russell 2000 index rose more than 1%.Yield on two-year Treasury notes rose to 3.87% after the data was released as investors priced out a larger reduction by the Fed in November. [US/]Rate-sensitive growth stocks such as Tesla (NASDAQ:TSLA) added 2.2%, Amazon.com (NASDAQ:AMZN) climbed 1.9%, while chip giant Nvidia (NASDAQ:NVDA) rose 1.3% in premarket trading.The labor market has been under greater scrutiny after the U.S. central bank slashed interest rates in September by a rare 50 basis points to stave off further weakening in employment. Traders expect borrowing costs to fall by an additional 56 bps before the year ends, down from an estimate of nearly 79 bps a week ago, according to data compiled by LSEG, as recent reports pointed to strong service sector activity in September.Wall Street’s main indexes closed lower on Thursday and were set to finish the first week of October on a weaker footing as investors were nervous about escalating tensions in the Middle East and the workers’ strike earlier this week.Analysts said the events could impact the inflation and labor figures for October. Energy stocks such as Occidental Petroleum (NYSE:OXY) edged higher 0.71% while Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) crept up 0.60% each as crude prices surged on worries of supply disruptions in the Middle East due to the widening regional conflict.The S&P 500 Energy sector is on track to log its biggest weekly jump since March 2023.Meanwhile, ports on the East and Gulf Coasts began reopening late on Thursday after workers reached a wage deal, but clearing the cargo backlog will likely take time. U.S. shares of Zim Integrated Shipping Services were down 11%.Among others, Spirit Airlines (NYSE:SAVE) nosedived 33% after a report showed the carrier was in talks with bondholders about the terms of a potential bankruptcy filing after its failed merger with JetBlue Airways (NASDAQ:JBLU). More

Nonfarm payrolls surged by 254,000 in September, up from a revised 159,000 in August and better than the 150,000 Dow Jones consensus forecast.
The unemployment rate fell to 4.1%, down 0.1 percentage point as the survey of household employment showed an even stronger picture, with a gain of 430,000.
Average hourly earnings increased 0.4% on the month and were up 4% from a year ago. Both figures were ahead of respective estimates.

The U.S. economy added far more jobs than expected in September, pointing to a vital employment picture as the unemployment rate edged lower, the Labor Department reported Friday.
Nonfarm payrolls surged by 254,000 for the month, up from a revised 159,000 in August and better than the 150,000 Dow Jones consensus forecast. The unemployment rate fell to 4.1%, down 0.1 percentage point.

With upward revisions from previous months, the report eases concerns about the state of the labor market and likely locks in the Federal Reserve to a more gradual pace of interest rate reductions. August’s total was revised up by 17,000 while July saw a much larger addition of 55,000, taking the monthly growth up to 144,000.
Strength in job creation spilled over to wages, as average hourly earnings increased 0.4% on the month and were up 4% from a year ago. Both figures were ahead of respective estimates for gains of 0.3% and 3.8%. The average work week nudged lower to 34.2 hours, down 0.1 hour.

“It was ‘wow’ across the board, much stronger than expected,” Kathy Jones, chief fixed income strategist at Charles Schwab, said of the report. “The bottom line is it was a very good report. You get upward revisions and it tells you the job market continues to be healthy, and that means the economy is healthy.”
Stock market futures added to gains following the report while Treasury yields moved sharply higher.
Restaurants and bars led job creation for the month, with the hospitality industry adding 69,000 positions in September after averaging just 14,000 over the previous 12 months.

Health care, a consistent leader in job growth, contributed 45,000, while government grew by 31,000. Other gainers included social assistance (27,000) and construction (25,000).
A more encompassing measure of unemployment that includes discouraged workers and those holding part-time jobs for economic reasons dropped to 7.7%. The share of the workforce either working or looking for work, known as the labor force participation rate, held steady at 62.7%.

The survey of household employment, which is used to calculate the unemployment rate, showed an even stronger picture, with a gain of 430,000 as the employment-to-population ratio increasing to 60.2%, an increase of 0.2 percentage point.
Job creation tilted strongly to full-time positions, which were up 414,000, while those reporting part-time work fell by 95,000.
Futures market pricing shifted sharply after the report, with traders now assigning a strong chance of consecutive quarter percentage point interest rate cuts from the Federal Reserve in November and December.
The report comes with questions over the labor market’s strength and how that will impact the Fed’s approach to lowering interest rates.
Earlier this week, Fed Chair Jerome Powell characterized the jobs picture as “solid” but said it has “clearly cooled” over the past year.
There have been scant signs of a stepped-up pace of layoffs, as new claims for unemployment benefits have held steady but hiring rates have cooled. Business surveys, including the Fed’s own “Beige Book” summary of business conditions, indicate that companies are holding head counts fairly steady.
Powell and other Fed officials have indicated a willingness to continue lowering interest rates following last month’s half percentage point cut in the overnight borrowing level. However, there’s considerable debate within the market about how quickly the central bank will move, and Powell said Monday he expects the Fed to move in quarter-point increments at least through the end of the year. More

Nonfarm payrolls increased by 254,000 jobs last month after rising by an upwardly revised 159,000 in August, the Labor Department’s Bureau of Labor Statistics said in its closely watched employment report on Friday. Economists polled by Reuters had forecast payrolls rising by 140,000 positions after advancing by a previously reported 142,000 in August.The initial payrolls count for August has typically been revised higher over the past decade. Estimates for September’s job gains ranged from 70,000 to 220,000.The labor market slowdown is being driven by tepid hiring against the backdrop of increased labor supply stemming mostly from a rise in immigration. Layoffs have remained low, which is underpinning the economy through solid consumer spending. Average hourly earnings rose 0.4% after gaining 0.5% in August. Wages increased 4.0% year-on-year after climbing 3.9% in August. The unemployment rate dropped from 4.2% in August. It has jumped from 3.4% in April 2023, in part boosted by the 16-24 age cohort and rise in temporary layoffs during the annual automobile plant shutdowns in July. The U.S. central bank’s policy setting committee kicked off its policy easing cycle with an unusually large half-percentage-point rate cut last month and Fed Chair Jerome Powell emphasized growing concerns over the health of the labor market.While the labor market has taken a step back, annual benchmark revisions to national accounts data last week showed the economy in a much better shape than previously estimated, with upgrades to growth, income, savings and corporate profits.This improved economic backdrop was acknowledged by Powell this week when he pushed back against investors’ expectations for another half-percentage-point rate cut in November, saying “this is not a committee that feels like it is in a hurry to cut rates quickly.”The Fed hiked rates by 525 basis points in 2022 and 2023, and delivered its first rate cut since 2020 last month. Its policy rate is currently set in the 4.75%-5.00% band. Early on Friday, financial markets saw a roughly 71.5% chance of a quarter-point rate reduction in November, CME’s FedWatch tool showed. The odds of a 50 basis points cut were around 28.5%.The labor market, however, is likely to experience some brief turbulence after Hurricane Helene devastated large swathes of the U.S. Southeast last week. Tens of thousands of machinists at Boeing (NYSE:BA) also went on strike in September, with ripple effects on the aerospace company’s suppliers. A work stoppage by about 45,000 dockworkers on the East Coast and Gulf Coast ended late on Thursday after their union and port operators reached a tentative deal. The Boeing strike, if it persists beyond next week, could dent the nonfarm payrolls data for October, which will be released just days before the Nov. 5 U.S. presidential election.  (This story has been refiled to fix a typographical error in paragraph 7) More

LONDON (Reuters) -The Bank of England should move only gradually with cutting interest rates, Chief Economist Huw Pill said on Friday, a day after Governor Andrew Bailey was quoted as saying the BoE might move more aggressively to lower borrowing costs.Pill warned of lingering inflation risks in a speech that prompted a partial recovery in sterling after it slumped on Thursday following Bailey’s comments.”While further cuts in Bank Rate remain in prospect should the economic and inflation outlook evolve broadly as expected, it will be important to guard against the risk of cutting rates either too far or too fast,” Pill told the Institute of Chartered Accountants in England and Wales.”For me, the need for such caution points to a gradual withdrawal of monetary policy restriction.”The BoE’s Monetary Policy Committee is expected to cut interest rates by a quarter-point at its next meeting in November. It cut rates for the first time in more than four years in August, a decision which Pill opposed.Financial markets are more divided about whether the BoE will follow a rate cut in November with another in December. The BoE has not cut rates at consecutive meetings since 2020.Bailey told the Guardian newspaper that the central bank could move more aggressively to cut rates if there was further welcome news on inflation. Sterling rose by a fifth of a cent against the U.S. dollar when Pill’s speech was published, having plunged by more than a cent on Thursday.Investors have largely expected the BoE to cut rates more slowly than the U.S. Federal Reserve and the European Central Bank, a view which Bailey’s comments challenged.Andrew Goodwin, chief UK economist at Oxford Economics, said the chance of a December rate cut was rising as he judged Bailey’s view was more representative of the majority on the BoE’s nine-member Monetary Policy Committee.”The Budget on October 30 is likely to be a decisive factor in whether Bailey’s camp decides to step up the pace of rate cuts, particularly given the recent speculation that the fiscal rules will be changed in a way that allows looser fiscal policy,” Goodwin said. Finance minister Rachel Reeves has said higher taxes are likely at her first budget since Labour returned to government on July 4 but she and Prime Minister Keir Starmer have also stressed the importance of boosting investment. Pill said he remained concerned about the possibility of structural changes in Britain’s economy that could sustain inflation pressures, which gave “ample reason” for caution in assessing how quickly that persistence would lift. Pill also said that inflation among services firms and pay growth represented “a continued source of concern”.An alternate economic forecasting model – which had similar starting assumptions to the BoE’s main model, but did not have the same built-in constraints on possible outcomes – showed inflation staying slightly above 2% over the medium term.Pill said the alternate model should be taken seriously, and that it suggested the neutral interest rate and the natural rate of unemployment could both be higher than the BoE had assumed.”I am worried more about inflation than what’s reflected in the MPC’s published forecasts,” he said. More

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