Good Monday Morning! Thanks for starting your week with us!
In this edition we are covering a strong jobs report, its impact on interest rates and the stock market, more tensions in the Middle East, another Hurricane developing in the Gulf.
US job growth topped all estimates in a report released Friday. The unemployment rate unexpectedly declined and wage growth accelerated, all but taking the odds out that the Federal Reserve will do another 50 basis point interest rate cut at their next meeting on November 7. Non-farm payrolls increased by 254,000 in September, the most in six months. Economists had predicted a much smaller increase of 150k.
An upward revision from the previous two months showed an additional 72,000. The unemployment rate fell to 4.1% and hourly earnings increased 4% from a year earlier, according to the Bureau of Labor Statistics.
Fed Chair Jerome Powell had reaffirmed earlier that concerns about the labor market were part of the reason why the Fed decided to start their easing cycle with a large 50 basis point cut in September. This strong jobs report should help ease those concerns and keep them from doing another larger cut. Bottom line, a 25 basis point cut is baked in for their next meeting.
Meanwhile, the US Treasury market immediately reversed its course that the Fed was on a more aggressive easing pace after the jobs release and interest rates shot up over 20 basis points in the front end of the curve. The 2yr ended at 3.92%, The 5yr ended at 3.80%.
The next test will be the consumer price data out Thursday.
Stocks ended Friday very close to session highs on the stronger-than-expected jobs report, which underscores the resilience of the US economy and hopes that a soft landing could be achieved. The S&P rose nearly 1.0%, while the NASDAQ rose 1.22%. Those two indices are up over 20% for the year. The Dow Jones rose 341 points on the news.
The US Central Command said on Friday that it struck Houthi targets in Yemen, including Houthi offensive military capabilities, to secure international waterways. The Red Sea is a key trade route between Asia, Europe and the Middle East. The US strikes were taken to prevent attacks on commercial vessels by the Houthi rebels. Tensions have risen in the Middle East following Israel’s killing of Hezbollah leader Hassan Nasrallah last Friday.
Less than 10 days after Hurricane Helene made landfall and left a wake of death and destruction, the Gulf of Mexico is bracing for another storm. Tropical storm Milton is forecast to strengthen and bring potential life-threatening impacts to the west coast of Florida on Wednesday as a Category 3 storm. For a hurricane to become a Category 3, winds at its center must be sustained at 111 mph.
