In recent times, the surge in bond yields has been a dominant factor shaping markets on the expectation that major central banks may hold rates for longer. Signs of robust economic data has raised concerns as of late about the Federal Reserve’s future policy decisions.
We saw a remarkable turn of events on Friday in the US, following the latest non-farm payrolls report. Initially, there was a sharp market reaction to the September 2023 report, which revealed unexpectedly strong job gains. Employers added an impressive 336,000 jobs during the month, the most significant increase since January 2023, and nearly double analysts’ predictions. Upon further inspection the rise may have been distorted somewhat by seasonal adjustments.
This news initially led to concerns about the Federal Reserve’s potential actions in response to the robust labour market, causing stocks to dip. However, sentiment quickly shifted from caution to enthusiasm as the broader context of the report was considered. Of particular note was the indication of softening wage growth, suggesting that the Fed’s efforts to contain inflation may be yielding results. Average hourly earnings inched up by just 0.2% in September, a slower pace than the 0.3% increase anticipated by analysts. The unemployment rate remained stable at 3.8%.