US Non-Farm Payrolls (OCT); Unemployment Rate (OCT) (13:30 GMT, 08:30 EST)Actual: 92.0K Actual: 4.4%Expected: 123.0K Expected: 4.6%Previous: 148.0K Previous: 4.6%
How Did the Markets React?
US non-farm payroll is one of the most market moving pieces of economic data for the financial markets. As a reflection of the overall health of the economy and a leading indicator for consumer spending, the NFP report usually overshadows any other news in the financial markets on the day that it is released. This was true for the FX and bond markets today, but not for the stock market. Both the US dollar and bond yields shot up after the release of payrolls. Even though the headline number fell short of expectations, the prior figure for September was revised from 51k to 148k, making the 2 month average a respectable 120k. With previous data such as manufacturing ISM, Chicago PMI, consumer confidence and productivity coming in weaker than expected this past week, the overall strength of the labor market report helped the US dollar and bond yields to recover. However interestingly enough, the bond market was the only market that traded correctly after the payrolls report. The FX market had a false initial reaction while the stock market was unable to hold onto its earlier gains.Bonds 10 Year US Treasuries
The bond market was not only the first market to react to the payrolls release, but its initial reaction was the most correct one. The FX market actually first sold dollars on the weaker payrolls print, but within a matter of minutes, the losses became gains as the dollar moved back in line with bonds. Ten year bond yield prices fell from 102-09 to a low 101-18 in less than 30 minutes after the release. It continued to trend lower for the rest of the trading day, with prices hitting a low of 101-05 and yields breaking above 4.70 percent. The reason why bond prices sold off is because the market has been pricing in an early rate cut by the Federal Reserve next year. However given that companies are still hiring fairly aggressively, this suggests that the economy may still be doing decently and as such, if this continues, the Fed may not feel a need to cut interest rates in the first quarter.FX EUR/USD
The FX market likes to look at headline numbers and that was exactly what it did when payrolls came out. Currency traders sent the EUR/USD from 1.2770 to 1.2795 in the first 60 seconds of the NFP release. Just as quickly as the gains were incurred, it was reversed. Within the next minute, the EUR/USD fell from 1.2790 to 1.2710. A sell-off in the EUR/USD represents a rally in the US dollar. The currency pair then proceeded to continue to weaken to a low of 1.2680 by 9am EST. The initial reaction was a false reaction and for traders watching the bond markets, they would have realized this relatively quickly. After having sold off significantly over the past week, the currency market was very eager to send the dollar higher after the NFP. However, the EUR/USD managed to recover about 30 percent of its losses by the end of the US trading session as some traders square up for next weeks US Mid-Term elections.Equities Dow Jones Industrial Average
When the NYSE opened for trading, the Dow shot up 40 points to a high of 12061.44. The initial reaction made sense because the strong labor market and the drop in the unemployment rate should have been perceived as bullish for the stock market because it meant that consumers would be more willing to spend come Christmas season. However, the gains were quickly reversed as oil prices increased and earning reports began to filter in. By the end of the day, the DJIA, closed down 32.50 points at 11986.04. If it werent for these two distractions, the stock market should have been able to sustain its gains like the currency and bond markets. This indicates that if oil prices reverse next week, we may see a catch up move in the Dow.