Interest Rate Outlook Largely Unchanged Following Tepid Employment Report

The much anticipated September labor report was released this morning, and was uniformly weaker than expected.  Coming in at +156,000 for nonfarm payrolls, this was below the 172,000 market consensus level, while August payrolls were adjusted down 11,000 from what was previously reported.  Despite being below expectations, hearkening back to 1990’s economic jargon, Federal Reserve Vice Chairman Stanley Fischer described today’s jobs data as close to a “Goldilocks” reading that demonstrated a growing economy, yet not too fast as to risk an overheating.  The unemployment data similarly missed predictions, reported at 5% compared to an expected 4.9% reading, although a six-month high in the labor participation rate helped to explain the increase.  Also in the report, hourly wages moved up 6 cents, resulting in an annualized rate gain of 2.6%.  The probability of a November rate hike fell to just above 10% while the market odds for a December move are staying firm around a 66% chance.

Abroad, the U.K. saw its currency “flash-crash” in a span of two minutes of trading during Asia market hours.  It was the U.K.’s largest intraday currency slide since the British referendum that reportedly stemmed from comments made by French President Francois Hollande, who during a dinner with EU leaders on Thursday night expressed his desire to remain tough when negotiating the future terms of the Brexit with England.  From there the sterling dropped through support levels where algorithmic trading then further drove the currency’s slide.  The British pound fell as much as 6.1% percent, touching $1.181/GBP before paring a good portion of its loss to trade back near $1.24/GBP – a new 31 year closing low.  Overall, stocks in England gained just above 0.5% on the day after benefitting from the currency devaluation, while the rest of Europe saw equities fall between 0.75%-1.50%.

All three major U.S. stock indexes have been choppy throughout the day and are currently trading flat to down 0.25%.  Treasury yields/swap rates are essentially ending the day unchanged, although they traded in a 6 basis point range after the payroll release.  Crude oil prices gave back a portion of their recent gains, but ultimately closed up 3.3% for the week, as WTI crude closed at $49.75/barrel and Brent crude finished the week at $51.85/barrel.