US nonfarm payrolls easily beat expectations resulting in significant moves across asset markets. They rose double the consensus estimate, with sizable upward revisions to previous months. US treasuries sold off aggressively following the data

US nonfarm payrolls easily beat expectations at the end of last week resulting in significant moves across asset markets. US bond yields surged to fresh cycle highs before retracing with similar price action in the US Dollar which rallied initially before losing traction. The S&P erased early losses and closed 1% higher. Oil prices were little changed but still made the largest weekly fall since March, amid concerns about weaker global demand and elevated interest rates. Rising geopolitical risk in the Middle East is likely to support oil prices as well as dampen investor risk sentiment.

Nonfarm payrolls increased 336k in September — the most since January and double the median estimate — alongside a sizable 119k of upward revisions to the prior two months. The unemployment rate held steady at 3.8%, marginally higher than the 3.7% consensus after the surprising 0.3% jump in August. Meanwhile, average hourly earnings increased 0.2% m/m and 4.2% on an annual basis which the smallest increase since mid-2021.

The futures market priced an increased chance of a 25bp rate hike in November but not materially. There is about 8bp of hikes priced for the November FOMC suggesting a ~30% chance of a 25bp hike. Despite the strong jobs data, the market continues to question if another rate hike will be required given the broader tightening in financial conditions.

San Francisco Fed President, Mary Daly, an alternate voter on this year’s FOMC, said last week that the surge in yields reduces the need for another rate hike. The selloff in the treasury market has contributed to the tightest financial conditions since the peak of Fed hawkishness in late 2022, according to an index calculated by Goldman Sachs. Daly said she considers recent move higher in bond yields as equivalent to about one rate hike.

US treasuries sold off aggressively following the data. 2-year yields spiked from 5.04% to a high of 5.14% before retracing. However, the larger moves took place further out the yield curve. The yield on 10-year treasuries reached 4.89%, an intra-day increase of 15bp, with the session high last seen back in 2007. 30-year treasuries traded to a high of 5.05%. Treasury yields retraced from the highs though longer maturity bonds ended close to 25bp higher over last week. The 2y/10 curve continued the recent steepening trend and closed at -28bps.

Canadian labour market data was also strong. The economy added 64k jobs in September, more than three times consensus expectations. The unemployment rate was unchanged at 5.5% while hourly wages accelerated to 5.3% y/y. Although the economy has slowed, inflation and the labour market have remained firm. The Bank of Canada (BOC) will be looking for more evidence its hiking cycle has slowed the economy enough to restore price stability. The market is almost fully pricing a further 25bps hike by March.

In currency markets, the US Dollar jumped sharply following the upside surprise in payrolls but faded in line with the retracement in treasury yields. The dollar index traded 0.6% higher initially but ended the session around 0.2% lower than before the data. In the majors, EUR/USD slipped below 1.0500 before rebounding more than a big figure to close near 1.0580. The Yen was a notable underperformer within G10 currencies and remained weaker against the US dollar.

NZD/USD price action mirrored the US dollar initially dipping below 0.5930 before rebounding strongly to reach session highs above 0.6000. The move higher gained additional momentum as NZD/USD traded above the pre-payrolls levels. The kiwi was among the best performers in the G10 and gained against the Australian dollar. NZD/AUD traded above 0.9380 to the highest level in more than 4 months. NZD/JPY closed near 89.50, approaching the multi-year highs (90.20) reached in late September.

NZ government bond yields ended little changed in the local session on Friday with 10-year yields closing at 5.52%, only marginally below the multi-year highs of 5.54% reached during last week. Swaps were also little changed with and 10-year swap spreads remaining near recent lows at -19bp. Australian 3-year and 10-year bond futures ended the week at similar levels to the local close on Friday.

There is no local data today. The main event on the global economic calendar in the week ahead is September CPI in the US released early Friday morning (NZT).