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Briefing.com Summary:
*The September employment report wasn't strong, but the market's repsonse to it was.
*Oil prices see a sizable pullback on reports of Europe possibly releasing diesel from reserve stock and IEA members releasing oil supplies
*The market continues to price out the probability of a rate hike at the October FOMC meeting.
It took some effort yesterday, but the Treasury market got off to a positive start in October. That meant lower bond yields, which enabled the stock market to get off to a positive start in October as well, albeit by only a small margin.
Today's effort will again be pinned to interest rate movements, which themselves are being pinned to oil prices, supply issuance, deficit worries, the policy outlook for the Fed, and economic data.
The good news is that Treasury yields are being pinned lower this morning, with falling oil prices (WTI -3.7% to $89.43%) and some "weakish" employment data for September doing the driving. The 2-yr note yield is down six basis points to 4.73%, and the 10-yr note yield is down seven basis points to 5.17%.
Briefly, oil prices are down on reports that Europe is looking at possibly releasing diesel supplies from its reserve stocks, while IEA members are considering a release of 50 million barrels of oil. As for the employment data, it skewed more toward a "bad news is good news" kind of read.
We say that recognizing that nonfarm payrolls increased by just 29,000, while revisions to July and August combined led to 60,000 fewer jobs than previously reported. The unemployment rate ticked up from 4.1% to 4.2% (still low) and average hourly earnings rose only 0.1% month-over-month, leaving them up 3.0% year-over-year versus 3.1% in August.
The key takeaway from the report is that it isn't going to exacerbate inflation concerns for the Fed. It won't eradicate those concerns, but in terms of the market's newfound belief that the Fed is unlikely to raise rates at its October FOMC meeting, this report slides neatly into that thinking.
Notable headlines from the September Employment Situation Report:
- September nonfarm payrolls increased by 29,000 (Briefing.com consensus: 100,000). The 3-month average for total nonfarm payrolls was unchanged at 51,000. August nonfarm payrolls revised to 133,000 from 162,000. July nonfarm payrolls revised to -10,000 from 21,000.
- September private sector payrolls increased by 46,000 (Briefing.com consensus: 100,000). August private sector payrolls revised to 89,000 from 127,000. July private sector payrolls revised to 28,000 from 71,000.
- September unemployment rate was 4.2% (Briefing.com consensus: 4.1%) versus 4.1% in August. Persons unemployed for 27 weeks or more accounted for 27.1% of the unemployed versus 27.0% in August. The U6 unemployment rate, which accounts for unemployed and underemployed workers, decreased to 7.6% from 7.7% in August.
- September average hourly earnings were up 0.1% (Briefing.com consensus: 0.3%) on the heels of a 0.3% increase in August. Over the last 12 months, average hourly earnings have risen 3.0% versus 3.1% for the 12 months ending in August.
- The average workweek in September was 34.4 hours (Briefing.com consensus: 34.3) versus 34.4 hours in August. The manufacturing workweek was unchanged at 40.6 hours. Factory overtime was unchanged at 3.0 hours.
- The labor force participation rate increased to 61.8% from 61.6% in August.
- The employment-population ratio increased to 59.2% from 59.1% in August.
Nike (NKE), for its part, is sliding in a bad way. Its stock is down 8% after the company posted better-than-expected earnings for its fiscal first quarter but then issued a dour outlook for the fiscal year that was well below consensus estimates.
Nike's performance will be an outlier in a stock market that continues to be energized by the AI trade and re-energized by the idea that the Fed has scope to hold off on another rate hike for now.
Following today's employment report, the probability of a 25-basis-point hike at the October meeting has dropped to 16.1% from 24.4% a day ago and 64.2% a week ago, whereas the probability of a 25-basis-point hike at the December FOMC meeting has been cut to 75.0% from 79.7% a day ago and 92.6% a week ago, according to the CME FedWatch Tool.
Currently, the S&P 500 futures are up 63 points and are trading 0.8% above fair value, the Nasdaq 100 futures are up 344 points and are trading 1.0% above fair value, and the Dow Jones Industrial Average futures are up 428 points and are trading 0.7% above fair value.
