US adds 250K Jobs and slashes unemployment

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• US Job growth beat all expectations

• Cooling labor market is not longer cooling

• Eurozone inflation goes below 2% target

• Hang Seng Index is up more 30% after China’s bazooka

• Oil surged by ~10% after escalation the Middle East and Biden’s comments

Let’s dissect

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Markets Snapshot

Macro and Fixed Income Markets

• US: The U.S. economy saw robust growth in September, adding 254,000 jobs, significantly surpassing the projected consensus of 150,000 and delivering the strongest result in six months. Additionally, the previously reported jobs growth figures for July and August were revised upward by a combined total of 72,000, reinforcing the strength of the labor market in the preceding months.

  The unemployment rate also dropped from 4.3% to 4.1%. While largely positive, the payroll report also highlighted a fifth consecutive monthly drop in manufacturing jobs in 2024. On Monday, the Institute for Supply Management (ISM) reported that its manufacturing index held steady at 47.2 in September, signaling continued contraction in the sector (with readings below 50 indicating shrinkage). Meanwhile, in stark contrast, the ISM’s services index surged to 54.9, exceeding expectations and marking its highest level in 19 months, indicating robust growth in the services sector. Wage growth remained strong, reflecting its persistent upward trend.

• Exceptionally strong non-farm payrolls report significantly increased the likelihood of a "no-landing" scenario for the U.S. economy. It also diminished expectations of a 50 basis-point rate cut at the FED's next meeting, highlighting how some prevailing macroeconomic narratives have become detached from actual economic fundamentals. The implied probability of 50bps cut on November 7th, 2 days after the US election, currently stands at mere 2.6%. The yield on the 2-year Treasury note rose from 3.70% on Thursday’s to 3.92% on Friday. This marks a notable jump, especially considering that the yield was at 3.56% just at the end of the previous week. The yield on the 10-year note ended the week at 3.97%. This sharp rise in yields reflects shifting expectations for FED policy.

• The upcoming Consumer Price Index (CPI) report, scheduled to be released on Thursday, will reveal whether the recent moderation in inflation has continued into September. In the last report for August, the CPI reflected an annual inflation rate of 2.5%, a drop from 2.9% in July, marking the lowest level since February 2021.

• EU: In September, annual headline inflation in the eurozone decelerated to 1.8%, its lowest level since April 2021, and below the expected rate of 1.9%. Inflation below the European Central Bank's (ECB) 2% target bolsters expectations for an interest rate cut on October 30th.

• Recent comments from European Central Bank (ECB) officials have reinforced expectations that the central bank may be shifting from its more gradual approach to monetary easing. ECB President Christine Lagarde, during a hearing with the European Union parliament, said that the latest developments strengthen ECB’s confidence that inflation will return to target in a timely manner.

Equity Markets

• US: The major U.S. stock indexes fluctuated between slight daily gains and losses throughout the week, before mounting a modest rally on Friday, which was enough to push the S&P 500 and the Dow just above the record highs they set the previous week. The S&P 500 and Nasdaq each gained 0.4% week-on-week, while the Dow index posted a slight increase of 0.15%.

• Overall, the U.S. stock market in September closely tracked August’s performance, with a steep drop in the openning week followed by a rebound to finish the month in positive territory. The S&P 500 ended September at a record high and delivered a total return of 2.1%, marking its tenth gain in the past eleven months.

• China: Following the People's Bank of China's (PBOC) coordinated measures to stabilize the economy in mid-September, Hong Kong’s Hang Seng China Enterprises Index has surged over 30%, with a 10% increase last week alone, making it the top performer among more than 90 global equity indices. In mainland China, stocks continued to rally last week as optimism surrounding Beijing's comprehensive support measures offset weaker economic fundamentals. The Shanghai Composite Index saw an increase of 8.06%, while the blue-chip CSI 300 Index climbed by 8.48%.

Commodity Markets

• Oil: Brent crude oil prices surged by 5% following President Biden's remarks on Thursday about the U.S. "discussing" potential Israeli strikes on Iran's energy facilities. Overall, crude oil prices increased by 9.2% for the week, marking the largest weekly rise since March 2023. The tensions in the Middle East, coupled with rising oil prices, boosted energy stocks, making the energy sector the best performer among the 11 S&P 500 sectors. By Friday afternoon, energy stocks had risen an average of 7% for the week .

• Markets are now mainly reacting to the escalation by reversing prior short positions. The broader demand outlook remains subdued, although it could be amplified by further price spikes, which are not yet considered a baseline scenario. Iran's domestic refinery targets, while unlikely to impact global oil balances significantly (due to negligible exports), contribute to an escalatory cycle that could affect Israeli and other regional infrastructure. On the supply side, the substantial surplus, mainly in the GCC, mitigate price risks. This outlook is also influenced by the ongoing KSA-Iran détente, which has reduced the likelihood of Houthi and other attacks on Saudi infrastructure. The U.S. lack of support following the Abqaiq attacks has played a crucial role in shaping this regional policy.

  Currently, there are no actual barrels offline, but this is the first time in recent months that the risk of supply disruptions seems to be increasing.

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