Markets head into next week with attention shifting from whether the Federal Reserve will raise rates in October to whether it will do so in December, after a much weaker-than-expected U.S. jobs report cooled near-term tightening expectations.
According to BlockBeats, U.S. nonfarm payrolls increased by just 29,000 in September, far below the market expectation of 90,000. August payrolls were also revised down by 133,000, while the unemployment rate rose to 4.2%.
After the payrolls release, expectations for an October rate hike faded. CME FedWatch data showed the probability of rates staying unchanged in October rising to 83.9%, while the probability of a December hike stood at 66.1%.
At the same time, the 10-year U.S. Treasury yield briefly rose to 5.36%, and the U.S. dollar index reached a 17-month high.
Fed minutes will be the main macro event
Next week’s key events include the minutes from the Federal Reserve’s September meeting, the G7’s release of strategic oil reserves, moves in long-dated Treasury yields and the U.S. ISM non-manufacturing PMI.
The Fed’s September meeting minutes are due at 2 a.m. Beijing time on Thursday. With markets now largely moving past the question of an October hike and focusing on December instead, investors will look for details on discussions around inflation and labor-market risks, divisions among officials over another hike versus a pause, and whether the tone was more hawkish or dovish than post-meeting remarks suggested.
Fed Governor Michelle Bowman and St. Louis Fed President Alberto Musalem are also scheduled to speak next week.
Long-end Treasury yields remain in focus
In the bond market, the U.S. Treasury will announce the size of its 20- to 30-year Treasury buyback operations and conduct auctions for 10-year and 30-year Treasuries.
The 10-year Treasury yield is currently near highs not seen in more than 20 years. The size of the buyback operations and demand at the auctions will be closely watched as important variables for the direction of long-end yields.
Energy markets watch the G7 and OPEC+
In energy, the G7 agreed to release 100 million barrels of oil and diesel reserves to ease supply pressure. The International Energy Agency will coordinate the related supply arrangements.
At the same time, the market expects OPEC+ to keep its November production target unchanged. But disruptions to shipping and energy infrastructure around the Strait of Hormuz have not been fully eliminated, leaving oil prices likely to remain highly volatile in the short term.
Gold and macro data are also on the schedule
Despite the weak payrolls report lowering expectations for a near-term Fed rate increase, gold failed to extend gains. Spot gold is down nearly 2% this week. The market remains constrained by rising Treasury yields, and whether gold can regain momentum next week will depend on changes in long-end rates and geopolitical developments.
On the data front, the U.S. September ISM non-manufacturing PMI is due at 10 p.m. on Monday, with the market expecting 55.1. The preliminary October reading of the University of Michigan consumer sentiment index is due on Friday, with the market expecting 47.6.
The European Central Bank will also release the minutes of its September meeting, Bank of Japan Governor Kazuo Ueda is scheduled to speak, and the Reserve Bank of India will announce its rate decision.
U.S. stocks enter a gap before earnings season
For equities, next week falls into a gap before the third-quarter earnings season begins. Macro variables may have a bigger impact on pricing during that window. Markets will continue to watch how AI capital spending, energy costs and financing conditions affect corporate earnings, while whether the 10-year Treasury yield can pull back from highs not seen in more than two decades will remain an important variable for growth-stock valuations and the performance of risk assets.