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U.S. job growth slowed sharply in October, suggesting the world’s largest economy is beginning to cool, prompting a renewed rally in Treasury bonds.
U.S. employers added 150,000 jobs last month, fewer than forecast and barely half of September’s revised figure of 297,000. Economists surveyed by Bloomberg had expected a total of 180,000 new jobs in October.
The numbers provided further boost for U.S. Treasury bonds as investors bet that the slowing labor market makes it more likely that the Federal Reserve will not raise interest rates further in the coming months.
The S&P 500 also opened in early trading with a gain of 0.7 percent, putting the stock market index on track for its best week in a year.
“This jobs report is. . . “We are helping to convince disbelievers that this is pretty much the end of the rate hike cycle,” said Kristina Hooper, chief global markets strategist at Invesco. “We are in a clear disinflationary trend, the economy is cooling and the Fed does not need to raise rates again.”
Trading in futures markets after the data release suggested that investors now expect a rate cut in June next year, whereas they had previously expected a cut in July. Traders also retreated further from expectations of another interest rate hike this year.
The yield on the two-year U.S. Treasury note, which moves inversely to price and reflects interest rate expectations, fell to a two-month low of 4.85 percent.
According to the Bureau of Labor Statistics, the U.S. unemployment rate rose to 3.9 percent in October, compared to 3.8 percent in September. Average earnings rose slightly by 0.2 percent, slowing slightly from the previous month’s 0.3 percent increase.
In a further revision, job gains in August were revised downwards by 62,000 to 165,000.
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Job growth is a key indicator for investors and Fed rate-setters, who are monitoring the labor market for signs that the central bank’s monetary tightening campaign is cooling the economy.
To reduce inflation, the Fed raised interest rates to a target range of 5.25 to 5.5 percent from near zero in March last year.
But it kept interest rates steady on Wednesday and is widely expected to join other central banks in keeping borrowing costs at current levels for some time.
Financial markets have increasingly priced in bets that the Fed will hold off on further rate hikes, with officials shifting the debate to how long to keep rates high.
Following Friday’s data release, the yield on the 10-year Treasury note, which is moving in line with growth expectations, fell to its lowest level since mid-October, falling 0.12 percentage points to 4.55 percent.
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However, Dean Maki, chief economist at Point72 Asset Management, said interest rates would remain high for longer than markets expected. “Growth will hold up better than many fear, and the Fed will want to make sure inflation falls before it starts cutting rates.”
He also warned that the recent rally in Treasury yields and the rise in the stock market were easing financial conditions, which “could essentially make the Fed more nervous about economic growth picking up.”
This week’s bond market rally began after Wednesday’s Fed meeting and resulted in the biggest two-day fall in 10-year Treasury yields since the U.S. banking crisis in early March.
Investors highlighted Fed Chairman Jay Powell’s comments that the central bank would “take a cautious approach” to future interest rate hikes, which some saw as a sign that borrowing costs had already slowed the U.S. economy.
Additional reporting by Kate Duguid