Nonfarm Payrolls Were Well Below Forecasts in October

Rates surge despite weak labor data. The short end of the swap curve plummeted ~15bps in the immediate aftermath of this morning’s labor figures, which showed a sharp decline in US hiring. However, rates reversed course throughout the remainder of the session and closed well above their intraday lows, up 1-10bps across a steepening curve. Low unemployment calmed concerns about dwindling labor market strength, paving the way for rates to rise as markets anticipate next week’s election results.

US hiring slowed significantly in October. Nonfarm payrolls (NFP) showed signs of a cooling labor market, with only 12k jobs added in October versus an anticipated 100k. That marks the lowest level since December 2020, where payrolls declined by 243k. Furthermore, NFP was revised lower by a combined 112k over the previous two months. Despite the deceleration in job growth, the unemployment rate held steady at 4.1% while average hourly earnings rose from September.

Another action-packed week awaits. Next Tuesday’s presidential election is likely to fuel market volatility no matter the results. While both candidates would be expected to increase the budget deficit and invite inflationary pressures, Trump has generally been associated with higher interest rates. Meanwhile, the next FOMC decision will be announced on Thursday. Markets currently expect a 25bp rate cut next week and in December.