A raft of new US data released today, has given wealth managers – and the Fed – plenty to ponder. US non-farm payrolls today came in at +254k (consensus: +140k) in September, versus 159k (revised from +142k) in August. The unemployment rate was 4.1% (consensus: 4.2) in September versus 4.2% in August. Average hourly earnings rose 0.4% in September (consensus: +0.3%), against a 0.4% gain in August.
Nathaniel Casey, Investment Strategist at wealth management firm Evelyn Partners, has shared his analysis as to what these data mean for markets as well as the outlook for the Fed, interest rates and the US economy as follows:
‘This data would have reassured markets of the strength of the US labour market and economy, if that were needed. The headline non-farm payroll figure saw its largest beat over consensus estimates since December 2023, with most of this strength being driven by private payrolls.
‘The unemployment rate continued to move in the right direction, for the second consecutive month, shedding 0.1% to 4.1%. Hourly earnings however, ticked up more than expected, which could cause concern if we start to see stickiness in inflation emerge.
‘The chance of a 50-basis point rate cut at the Federal Reserve’s November meeting reduced in the market in the wake of the new data, and markets are now pricing in less than a 10% chance of this larger cut, strongly favouring a 25-basis point reduction instead. Having already made a 50-basis point cut at their September meeting, shifting down a gear to smaller magnitude cuts seems logical in the wake of accelerating economic data.
‘This comes after July’s jobs report was taken by markets as painting a bleak picture. Although unemployment (the household survey) had been ticking higher over the course of the year, the establishment survey (the non-farm payrolls) had generally been telling the opposite story, with jobs creation regularly surprising on the upside. That mixed messaging came to abrupt stop with July’s data, when both the establishment and household surveys disappointed.
‘This raised questions around the strength of the US economy and the much-anticipated economic soft landing the Fed had been working to engineer, resulting in a surge in equity market volatility. But since then, some more positive economic numbers have calmed markets, and today’s NFPs should further reassure investors.
‘Following the data release US 10-year treasury yields rose by 10-basis points while US equity futures were up by just under 1% prior to markets opening.’
Bottom line: ‘Today’s stronger than expected payroll data should damper any US recession fears that had emerged in markets over recent months. However, this could also give the Fed more breathing room to cut rat
