US Added Just 29,000 Jobs in September, Crushing Fed Rate Hike Bets for October

The US economy added a far weaker than expected 29,000 nonfarm payroll jobs in September, according to Bureau of Labor Statistics data released Friday, missing the consensus forecast of around 84,000 to 90,000 and representing a dramatic shortfall that immediately reshaped Federal Reserve rate expectations. The unemployment rate edged up to 4.2%, above the 4.1% forecast and prior month reading, while August payrolls were revised down by 29,000 to 133,000, compounding the signal of a cooling labor market.

Market reaction was swift. Treasury yields initially plunged on the data before partially recovering, with 2-year and 5-year yields briefly returning to pre-report levels before the dust settled and the 2s10s curve was quoted at plus 42.3 basis points. Tech stocks surged as traders rapidly unwound bets on a Fed hike at the October meeting, with odds of such a move collapsing from around 23% ahead of the report. The Fed is now widely expected to skip a rate increase this month given the evidence of labor market softness.

The report also rattled European bond markets, where French yields were already drawing attention amid concerns about an ECB nightmare scenario of rising sovereign spreads alongside slowing growth. Canada's TSX climbed on the data as the weak US hiring figures eased fears of a sympathetic rate increase north of the border as well.