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Payrolls - Coming in Hot

Payrolls - Coming in Hot

October 06, 2023

The nonfarm payrolls data for October was released today, and to say the least, the number came in hot. The headline data (shown below) came in at nearly double the estimates and above nearly all the highest estimates. The only “positive” in the report was weaker than expected wage gains, but these numbers are not enough to offset the headline.

Source: Bloomberg/BCIS

This is important as the Federal Reserve’s (the ”Fed”) “higher for longer” mantra has not been well heeded by the markets and a broad expectation has been that the Fed was done raising rates – the “pause”. The Fed has repeatedly mentioned their focus on the labor market as a concern and today’s numbers do not alleviate that concern – they exacerbate it. As higher for longer affects all risk markets (and risk-free as well), any re-think of the path or rates warrants a revaluation of risk assets. Needless to say, many market participants are revisiting their view of the November FOMC meeting, and the likelihood of another rate increase. While we are not solidly in the “hike camp”, we believe this adds pressure on the Fed and therefore increases uncertainty – and the market hates uncertainty.

The markets reacted immediately to the data and equity futures dropped as did bond prices. The long bond broke through five percent on the release, marking the first time since 2007 it has traded in the five percent area.

Source: Bloomberg/BCIS

Our takeaway from this morning’s release is that November is not “off the table” and risk assets will continue to be volatile until more data comes in that points in either direction. Treasury bills remain an attractive alternative to risk at this point and have cheapened up with today’s release. We are still cautious on equity risk given valuations.


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