Weak Labor Data Sends Rates, Hike Odds Lower

Rates and hike bets plummet. Today’s weak labor data may have put a nail in the coffin for future rate hikes. The miss on both headline job growth and month-over-month wage growth led rates to fall dramatically, pulling the 2y (4.84%) and 10y UST (4.57%) yields 25bps and 36bps below their recent highs, respectively. Meanwhile, equities soared, the S&P 500 recording its best week this year while the VIX index recorded its largest 5-day plunge in 21 months.

Jobs growth slowed by more than expected, with last month’s figures revised lower. Nonfarm payrolls growth was lower than estimates for October (150,000 actual vs. 180,000 est.), and September figures were revised down from 336,000 to 297,000. Though government and healthcare jobs posted gains, other categories were flat or declined. Manufacturing payrolls declined by 35,000, driven by the UAW strike, which is expected to be temporary. The unemployment rate also rose to a ~2-year high of 3.9%.

Rate hike odds are now at 11%. Odds of a 25bp hike by January were slashed to ~11% according to Fed Funds futures, down from ~42% just days ago. Furthermore, a rate cut is now fully priced in by June, whereas a cut wasn’t expected until July earlier this week.