Stocks Rebound on Softer US Jobs Data While Bonds Face Renewed Selling
Market Reactions to US Jobs Data and Bond Selloff
By Caroline Valetkevitch and Samuel Indyk
US Jobs Data and Federal Reserve Expectations
NEW YORK/LONDON, Oct 2 (Reuters) - Major stock indexes rose and the dollar fell on Friday as expectations for a Federal Reserve interest rate increase later this month fell after softer-than-forecast US jobs data.
Yields, however, rose again, as the bond market resumed an ongoing selloff that has seen global yields rise to levels not seen in two decades.
Labor Market Performance
Nonfarm payrolls increased by 29,000 jobs last month, the Labor Department's closely watched employment report showed, short of the expected gain of 90,000, according to economists polled by Reuters. Job growth for August was revised down to 133,000 from a previously reported 162,000 surge.
Federal Reserve Rate Hike Bets
Bets on an October rate rise from the Fed, which last month increased rates for the first time since 2023, faded after the data. Traders were last pricing in a roughly 80% probability that rates would be unchanged at this month's meeting compared with 74% before the data.
"It wasn't as hot a labor market print as August," said Joseph Purtell, senior vice president, portfolio manager and rates trader at Neuberger Berman. He still described the labor market as largely stable, however.
Expectations for an October rate hike had already been declining going into Friday's jobs report. Two top policymakers said this week they wanted more data before deciding what to do next with interest rates. Odds of a December hike were last at around 86% probability, according to LSEG data.
Stock Market Performance
Impact of Rate Expectations on Stocks
Higher rates are often viewed as a negative for stocks because they increase borrowing costs for businesses and consumers.
On Wall Street, tempered expectations for an impending rate hike helped boost rate-sensitive stocks such as the S&P 500 real estate index, which gained 0.4%, and the small-cap Russell 2000 index, which gained 0.9% to register its biggest daily gain in a month.
Major Indexes and Weekly Performance
The Nasdaq Composite was 1.2% higher, leading Wall Street, as it gained 319.27 points to 27,190.86. The Dow Jones Industrial Average rose 250.40 points, or 0.5%, to 51,176.96, the S&P 500 rose 56.27 points, or 0.7%, to 7,722.72. For the week, the S&P 500 shed 0.27%, the Nasdaq rose 0.45%, and the Dow fell 1.26%.
MSCI's gauge of stocks across the globe rose 7.01 points, or 0.6%, to 1,140.27. The pan-European STOXX 600 index ended 0.75% higher.
Currency Market Movements
The dollar was down against the euro and yen. The euro was last up 0.16% at $1.1259. Against the Japanese yen, the dollar weakened 0.18% to 157.79.
Bond Market Developments
US Treasury and Global Bond Yields
GAP BETWEEN GERMAN, FRENCH YIELDS HITS WIDEST SINCE 2011
US Treasury yields initially lost ground following the jobs data, but were later higher on the day, with some investors noting that the jobs report was not so weak that it removed chances for the Fed to raise rates in coming months.
Global bond markets have been steadily selling off in recent weeks as the US-Israeli war with Iran pushed up energy prices, complicating the inflation outlook and further straining already stretched public finances. Benchmark 10-year US yields closed September with their largest quarterly rise since 1994.
The yield on benchmark US 10-year notes was last up 4.72 basis points at 5.281%, while the 2-year note yield, which typically moves in step with interest rate expectations for the Fed, was up 3.98 bps at 4.827%. For the week, 10-year yields were on track for a 10-basis-point increase, which would mark their fifth consecutive weekly gain.
European Bond Market Volatility
Trading on Friday remained volatile in European government bond markets, with the gap between the German and French 10-year yields hitting the widest level since the euro zone debt crisis in 2011.
Overseas, German 2-year bond yields were last flat at 3.05%, having swung between session lows of 2.943% and highs of 3.063%, while French 2-year yields were around 4 bps higher at 3.73%, having risen to as much as 3.84% earlier. Italian 2-year yields were down 7 bps at 3.547%.
This week, 2-year German yields have fallen nearly a quarter point, while those on 2-year French bonds have risen nearly 14 bps.
Commodities Update
Oil and Gold Prices
Brent crude futures climbed while US West Texas Intermediate held on to a portion of earlier losses after European leaders agreed to US President Donald Trump's request to release diesel reserves.
Brent was up 46 cents, or 0.45%, at $102.77 a barrel in late afternoon. WTI was down 1% to $91.90 a barrel.
Spot gold fell 1.01% to $4,135.68 an ounce.
(Reporting by Samuel Indyk and Stella Qiu; Editing by Kevin Buckland, Jamie Freed, Emelia Sithole-Matarise, David Gaffen and Aurora Ellis)
