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Jobs growth in the US slowed sharply in October in an indication that the world’s largest economy is starting to cool, reigniting a rally in government bonds.
US employers created 150,000 new posts last month — less than forecast and barely half of September’s revised figure of 297,000. Economists surveyed by Bloomberg had expected a total of 180,000 new jobs for October.
The figures provided further fuel for a rally in US Treasuries, as investors bet that the slowdown in the labour market made it more likely that the US Federal Reserve will not raise rates further in coming months.
The S&P 500 also opened 0.7 per cent higher in early trading, putting the stock market index on track for its best week in a year.
“This jobs report is . . . helping convince non-believers that this is very much the end of the rate hike cycle,” said Kristina Hooper, chief global markets strategist at Invesco. “We are very much in a disinflationary trend, the economy is cooling and the Fed does not have to hike rates again.”
Trading in futures markets after the data release signalled that investors now expect a rate cut in June next year, compared with their previous expectations of a cut in July. Traders also pulled back further from any expectation of a further rate rise this year.
The yield on the two-year US Treasury note, which moves inversely to price and tracks interest rate expectations, fell to a two-month low of 4.85 per cent.
According to the Bureau of Labor Statistics data, the US unemployment rate rose to 3.9 per cent in October, from 3.8 per cent in September. Average earnings edged 0.2 per cent higher, a slight slowdown from the 0.3 per cent increase in the previous month.
In a further revision, job gains in August were revised lower by 62,000 to 165,000.
Jobs growth is an important indicator for investors and Fed rate-setters, who monitor the labour market for evidence that the central bank’s monetary policy tightening campaign is cooling the economy.
The Fed has raised interest rates from near zero in March last year to a target range of 5.25 to 5.5 per cent in an effort to bring down inflation.
But it held interest rates steady on Wednesday and along with other central banks is widely expected to keep borrowing costs at current levels for some time.
Financial markets have increasingly priced in bets that the Fed will hold off further rate increases, with officials shifting the debate towards how long to keep them high.
After Friday’s data release, the yield on the 10-year Treasury note, which moves in line with growth expectations, fell to its lowest level since mid-October, down 0.12 percentage point to 4.55 per cent.
But Dean Maki, chief economist at Point72 Asset Management, argued that rates would remain high for longer than markets expected. “Growth will hold up better than many fear and the Fed will want to make sure that inflation is coming down before they start cutting rates,” he sid.
He also cautioned that the recent Treasury yield rally and rise in the stock market were easing financial conditions that “could in principle make the Fed more nervous about economic growth picking up again.”
Bond markets began this week’s rally after Wednesday’s Fed meeting, bringing about the biggest two-day fall in 10-year Treasury yields since the US banking crisis of early March.
Investors highlighted remarks by Fed chief Jay Powell that the central bank was “proceeding carefully” with future rate rises, which some took as a sign that borrowing costs have already succeeded in slowing down the US economy.
Additional reporting by Kate Duguid
