October labor market statistics show a serious continued nationwide job-creation slowdown in the U.S. The yearly average for non-farm payroll gains has been 75,000 jobs per month in 2019. This expansion sets a dramatic counterpoint to the speed we experienced in the first few months of 2024. That’s despite the fact that job growth has clearly come to a grinding halt. Over the last four months, it has averaged just 27,000 jobs per month in the run up to August. These figures raise questions about the resilience of the US economy as it grapples with shifting economic indicators.
Additionally, job growth from January to August 2024 was much higher – almost double – than the subsequent months. This dramatic increase indicates the start of a new economic tide. This recent slowdown in job creation exposes these precarious realities in the labor market. This trend is forcing many analysts to reconsider their predictions for job growth and the economy.
Recent innovations on the financial markets side only add to this tentative optimism. US 10-year Treasury yield up modestly, back over 4.06%, another signal that borrowing costs will continue to climb. This uptick follows a period of historically low bond yields. Most broadly, it indicates that investors are beginning to reassess their expectations for where rates will go in the future, as the underlying economic landscape evolves.
Internationally, financial dynamics are at play. The spread on French 10-year govies over Germany has compressed by several bps. This change is a testament to the rapidly shifting investor sentiment, risk assessment and investor hubris across Europe. The euro jumped to session highs, last trading at $1.1765 in late North American dealings. This seems to be over last Friday’s high water mark. This movement shows a continued strengthening of the euro against the dollar, adding still more confusion to the already murky US economic landscape.
In Asia, currency moves are once again in focus with the offshore yuan still stronger than its onshore version. This divergence is especially notable as China gears up to report the full extent of its economic slowdown. The new Producer Price Index (PPI) and Consumer Price Index (CPI) for August will be released shortly. These soon to be released figures will shed light on inflationary pressures, but more importantly indicators of the overall health of the Chinese economy.
What was interesting is that the US dollar had an inside day yesterday. This marks a welcome reprieve from its recent chaos as traders digest more economic data with bated breath. Our US two-year premium over Germany is shrinking. This modification introduces additional layers of complexity to the campaign, US versus European market relationship, and exposes changing beliefs surrounding interest rates and economic expansion.
In Australia, the local dollar advanced by a notable 1/10 of a cent on terra Australis yesterday. This boost continued to compound its gains made before the weekend. This increase is a clear statement of confidence in the Australian economy. It’s very much at the mercy of external forces, especially global trends and commodity prices.
The key domestic economic reports still loom, with Mexico to release its August Consumer Price Index later today. This report is important for understanding inflationary trends with one of America’s largest trading partners. In the backdrop, all eyes will be on Canada as it gears up for its Bank of Canada meeting on Sept. 25. The Canadian dollar hit the top of its range on August 29. Traders are undoubtedly watching it closely as any hinted change in monetary policy would significantly affect trade flows in the region.
The swaps market signals an interesting turn. Since that Q2 GDP report on August 29, which confirmed a 1.6% annualized contraction, the implied year-end interest rate has fallen roughly 16 basis points. This decline suggests that market participants are reassessing their outlook for interest rates amid concerns about economic growth and inflation.