Equities partly recovered from the post-midterms tech selloff, with the Nasdaq up 1%. US payrolls easily beat expectations and unemployment fell to 4.1%. Front-end Treasury yields rose, with a December Fed hike still close to 80% priced

US equities staged a partial recovery on Friday night after the sharp post-midterms selloff in tech, helped by a much stronger-than-expected payrolls report. The Nasdaq rose 1% and a gauge of chipmakers climbed 4%, while the S&P gained 0.3%. Short-dated Treasuries underperformed as the data reinforced Fed hike expectations. Brent crude was little changed near US$98 per barrel amid hope for progress towards de-escalation in the Iran war. The US dollar made broad-based gains, with the NZD falling to a fresh low for the year near 0.5530.

US payrolls rose 165k in October, beating every forecast in the Bloomberg survey, with a further 84k of upward revisions to the previous two months. Hiring was broad-based across sectors and the unemployment rate fell to 4.1%. Average hourly earnings rose 0.4%, and September was revised up to 0.3% from 0.1%. Even so, annualised wage growth over the past three months was a subdued 3.2%, suggesting labour market strength is not yet generating significant wage pressure.

Separate data showed US consumer sentiment rose to a three-month high in early November, with the University of Michigan's preliminary index at 51.0, above the 48 expected. Americans' views of their personal finances and the economic outlook improved modestly. Year-ahead inflation expectations eased to 4.3% from 4.7%, while the 5–10 year measure was 3.4%, slightly below the 3.5% expected. After the data, money markets continued to price a nearly 80% chance of a Fed hike in December.

The strong data pushed front-end Treasury yields higher, flattening the curve as intermediate and longer maturities responded more modestly. The 2-year yield rose around 4bp to 4.51% – a relatively muted move given the size of the payrolls surprise, which hints at lingering doubts about the durability of the equity recovery. The 10-year yield edged up to 4.86% from a multi-week low of 4.82% in Friday's Asian session.

Canada's unemployment rate rose to 6.7% in October, above the 6.5% expected, as employment fell for a third straight month. The data adds to signs of a stalling labour market. Pricing for a December Bank of Canada hike fell to about 33%, front-end bonds rallied and the Canadian dollar extended its losses. Despite its inflation focus, the Bank may be wary of tightening again so soon after its late-October move.

The US dollar recovered its post-midterms losses on Friday night, with the dollar index up close to 0.5% and extending gains after the payrolls data. The NZD outperformed at the margin, having already fallen sharply during the local session to trade through its October low. It is now approaching a key support region that has held consistently over the past few years. The Norwegian krone was notably weak, with no apparent catalyst.

NZ rates stabilised in Friday's local session after sharp falls earlier in the week. The curve steepened, with the 2-year 2bp lower at 3.69% and the 10-year 3bp higher at 4.36%, likely reflecting some caution ahead of Saturday's election. A recovery in risk appetite during Asian trading also lifted global rates.

The election result is too close to call, with National's five-seat electorate overhang and the Opportunity Party's potential kingmaker role leaving the make-up of the next Government uncertain. Around 400,000 special votes are still to be counted, so the final result won't be confirmed until 27 November. With the outcome broadly in line with polling, the initial market impact on NZ markets should be contained.

There is no domestic data scheduled today. Internationally, China's October consumer and producer prices are the main releases. Producer prices likely rose further on higher energy costs, while consumer inflation is expected to stay subdued. China's 10-year government bond yield fell to a record low of 1.58% on Friday after a recent policy rate change was seen as a de facto easing. The remainder of the week is quiet locally, with Friday's PMI the only NZ release of note. Offshore, US CPI on Tuesday is the highlight, although the annual inflation rate won't be published because last October's government shutdown disrupted data collection.

Stuart Ritson is a senior Strategist at BNZ Markets.