US September nonfarm payrolls unexpectedly came in far below expectations, sharply cooling market expectations for a Federal Reserve rate hike in October. However, regarding whether the Fed will take rate action in December, market views remain clearly divided.
According to the specific data, September nonfarm payrolls added just 29,000 jobs, far below the market forecast of 90,000. The September unemployment rate stood at 4.2%, slightly above the market expectation of 4.1%. On wage growth, average hourly earnings rose 0.1% month-on-month in September, while the year-on-year growth rate fell back to 3.0%, below market expectations and the slowest pace of growth since 2021.
Overall, the unexpected miss in US September nonfarm payrolls has caused the probability of a Fed rate hike in October to drop sharply. Based on current market consensus, the Fed may choose to stay put in October, giving the stock market a temporary breathing room.
Following the Fed's rate hike announcement in September this year, the market worried that the Fed would begin a new rate hike cycle. Whether this Fed rate move is a one-off hike or the start of a tightening cycle will directly affect market investment sentiment.
Currently, A-shares are in the middle of the National Day holiday closure. Judging from the performance of the Hong Kong stock market during the long holiday, conditions are not optimistic. Market data from October 2 showed that both the Hang Seng Index and the Hang Seng Tech Index fell by more than 2%, with the Hang Seng Index returning below the 24,000-point level. During the long holiday, A50 index futures also performed relatively weakly, falling about 1% from the index level on September 30. However, with four days still remaining before the end of the National Day holiday, considerable uncertainty remains in the market.
Factors affecting A-share market trends after the holiday include not only the market environment but also the policy environment and liquidity conditions during the long holiday. Historical market data over the past decade shows that on the first trading day after the National Day holiday, the A-share market has shown a pattern of more gains than losses. Over the past ten years, there have been seven instances of gains and three instances of declines. Analyzing the first trading week after the National Day holiday, the market also shows a pattern of more gains than losses. From a probability standpoint, the first trading day and first trading week after the National Day holiday are relatively more likely to see stock market gains.
Analyzing the US September nonfarm payroll data, this unexpected miss has significantly reduced the probability of a Fed rate hike in October. In the period ahead, if US inflation, nonfarm payrolls and other indicators continue to run at reasonable levels, or even outperform market expectations, then the likelihood of a December rate hike will also decline, thereby easing market concerns about the Fed launching a new rate hike cycle.
As of now, the US 10-year Treasury yield remains at around 5.25%, while the US 30-year Treasury yield stands at above 5.6%. The continued rise in US Treasury yields, combined with the US dollar index hitting new阶段性 highs and other factors, reflects that long-end US yields are deviating from the Fed's policy rate, which forms a divergence from the phenomenon of nonfarm payrolls falling below market expectations and cooling Fed rate hike expectations.
Behind the continued rise in US 10-year and 30-year Treasury yields lies the implication that corporate financing costs are continuously rising, which will deal a worsening blow to companies that have long relied on various financing tools. In addition, in the process of sharply rising US Treasury yields, US fiscal pressure will also increase substantially, with interest expense costs also rising accordingly.
As the US 10-year Treasury yield serves as a globally important risk-free rate benchmark, the sharp rise in the US 10-year Treasury yield will affect global capital flows. For emerging markets, this will bring pressure of continued capital diversion and may even lead to repricing of emerging market asset prices.
Although the probability of a Fed rate hike in October has significantly cooled, from a market perspective, it is necessary to continuously observe changes in US 10-year and 30-year Treasury yields, as well as the direction of the US dollar index. These indicators will also have a profound impact on A-share and Hong Kong stock market trends after the holiday.
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