Weaker than expected US labour market data contributed to a rally across global bond markets boosting risk sentiment. Nonfarm payrolls increased 150k in October below estimates of 180k. The US ISM services PMI fell to a 5-month low

US nonfarm payrolls undershot expectations contributing to a further rally across global bond markets. 10-year US treasury yields fell 9bps on Friday and closed at 4.57%, having fallen 30bps during the week. Risk sensitive assets performed well with the S&P up 1%, taking its weekly advance to almost 6%, which was the largest since June last year. Investors are increasingly confident that the tightening cycle by global central banks is complete. The US dollar lost ground aligned with the pullback in treasury yields and positive risk sentiment.

Nonfarm payrolls increased 150k in October. This was below consensus estimates of 180k and there were downward revisions of 101k for the previous two months. Manufacturing payrolls fell 35k, which can largely be attributed to striking autoworkers, and will reverse in November. The unemployment rate increased to 3.9%, which was marginally higher expected. It has now increased 0.5% from the cyclical lows in April with a rebound in immigration contributing to an expanding labour force. Average hourly earnings increased 0.2% m/m and 4.1% y/y which the smallest increase since mid-2021.

The US services sector grew at a slower pace in October. The services PMI, published by the Institute for Supply Management (ISM), fell to a 5-month low of 51.8 which was below consensus estimates for a 53 reading. The ISM’s manufacturing index had slipped further into contractionary territory earlier last week. The PMIs are pointing towards a decline in US economic activity.

The recent data reduces the odds of a rate hike at the December FOMC though the US Federal Reserve still has another month of data including two CPI reports ahead of the meeting. Market pricing overwhelmingly favours the Fed remaining on hold in December.

Canadian labour market data was also soft relative to expectations. The economy added 18k jobs in October and the unemployment rate increased to 5.7% from 5.6%. The data reinforced expectations that the Bank of Canada has reached its terminal policy rate.

Global bond markets ended last week with a further move lower in yield. The series of weaker than expected US economic reports have contributed to a large rally across US treasuries. US 2-year yields fell 15bps to 4.84% while 10-year bonds reached lows near 4.5% before rebounding to close down 9bp at 4.57%. The 2y/10 curve reversed some of the previous day’s move and bull steepened.

There were some outsized moves in currency markets with the US dollar under pressure after the payrolls data. The services ISM contributed to a further leg lower with the dollar index falling close to 1%. EUR/USD traded to highs just below 1.0750, 2 big figures above the weekly lows. The Canadian dollar, while gaining against the US dollar, was weak on the cross rates while the defensive pairings, JPY and CHF, also underperformed amid the risk rally.

NZD/USD was close to the top of the currency leaderboard rallying 1.6% in the offshore session. NZD/USD made highs near 0.6000. The final election results, which revealed that National will need to rely on the support of NZ First as well as the ACT party failed to have any impact on the currency. The NZD outperformed on the cross rates. NZD/AUD moved higher and traded back above 0.9200.

NZ government bond yields ended marginally lower in yield with a flattening bias in the local session on Friday. 10-year bond yields fell 2bps to 5.23%. Interest rate swaps made similar incremental moves lower in yield with the curve flattening slightly. Australian bond futures are about 6bps lower in yield from the local close on Friday, and combined with the move in US treasuries, suggest NZGBs will open lower in yield.

There is no local data today and the week ahead is largely second-tier data. One of the key events will be the Reserve Bank of Australia rates decision on Tuesday.