Weak US September Non-Farm Payrolls Cool Rate Hike Expectations
Last Friday, the U.S. non-farm payrolls data forSeptember came in unexpectedly weak, becoming the key factor driving financialmarkets that day. All three major U.S. stock indices closed higher, with theNasdaq hitting a new intraday record high. Gold prices initially surged asexpectations for a Federal Reserve rate hike cooled, but subsequently fell,weighed down by a strengthening U.S. dollar and high bond yields.
The September non-farm payrolls report releasedby the U.S. Bureau of Labor Statistics showed that seasonally adjusted non-farmemployment increased by only 29K—far below the market expectation of 90K—whilethe unemployment rate rose from 4.1% to 4.2%. Of particular concern to themarket was the significant downward revision of employment figures for theprevious two months: July's employment count was lowered by 31K, resulting in anet loss of 10K jobs, while August's figure was revised down by 29K to a gainof 133K. This implies that the U.S. added an average of only about 17K jobs permonth over the past three months, signaling a clear slowdown in hiringmomentum.
However, this seemingly weak report actedas a catalyst for risk assets. The market logic was that a cooling labor marketwould reduce pressure on the Federal Reserve to raise interest rates further,thereby providing breathing room for the stock market. Market expectations fora Fed rate hike in October dropped from approximately 28% to 17%, with aconsensus emerging that the Fed would keep interest rates unchanged at itsOctober meeting. Consequently, the three major U.S. stock indices all closedhigher. The Nasdaq Composite Index touched 27,353.68 points at one stage,surpassing the previous intraday record high of 27,288.79 points set onSeptember 22; notably, the Nvidia's stock price hit an all-time intraday high,driving strength across the entire technology sector.
The gold market experienced a ratherdramatic trend following the release of the non-farm payrolls data. Weigheddown by weak economic data, the market scaled back bets on a near-term FederalReserve rate hike; gold prices initially surged over 1%, briefly breaching the$4,200-per-ounce mark. However, this rally proved short-lived. The US dollarmaintained its upward momentum for the week, and with long-term US bond yieldsremaining elevated, non-yielding gold came under pressure and reversed course,dropping to a low of $4,125 per ounce. While cooling expectations for a Fedrate hike may offer gold some short-term respite, but the overall trend remainsbearish; resistance levels are seen at $4,190–$4,260, with support at$4,050–$3,950.
Last Friday’s market activity clearlyhighlighted the central theme driving current markets: the Federal Reserve'sinterest rate trajectory. The unexpectedly weak September non-farm payrollsreport significantly dampened expectations for a rate hike, thereby reshapingthe short-term outlook for US equities, bonds, and the dollar. Yet, gold’ssubsequent decline serves as a reminder to traders that the lingering effectsof a strong dollar and high bond yields continue to weigh on non-yieldingassets. Looking ahead, the market will focus on the Federal Reserve’s policymeeting on October 28 to see if a "pause" in rate hikes will indeedmaterialize.
(Some visual images were created with the assistance of AI technology and are for illustrative purposes only.)
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