Bond Market Update

Ugly Jobs Report Unable to Prevent More Selling

• U.S. Treasuries had another volatile showing on Friday, reversing their early losses in reaction to a dismal jobs report for October, which showed much weaker-than-expected nonfarm payroll growth (12,000; Briefing.com consensus 120,000), the first decrease in private payrolls since December 2020 (-28,000; Briefing.com consensus 105,000), and sharp downward revisions to growth figures for September and August. The post-data rally sent Treasuries toward their best levels of the week, but the market began slipping from highs about 30 minutes after the report was released, continuing its second reversal of the day into the afternoon. The big miss could be blamed on the effects of two major hurricanes and a strike at Boeing, but the downward revisions to prior months were notable, reaffirming the market's expectations for a rate cut next week and another cut in December. The selling sent yields on 5s and longer tenors to their highest closing levels since early July while the 2-yr yield finished at its highest level since the start of August. The belly of the curve underperformed this week while the 2s10s spread expanded by three basis points for the week to 16 bps. Crude oil edged higher, but still lost $2.25, or 3.1%, for the week, while the U.S. Dollar Index rose 0.3% to 104.29 today, returning to little changed for the week.
• Yield Check:
  • 2-yr: +4 bps to 4.20% (+10 bps this week)
  • 3-yr: +5 bps to 4.18% (+14 bps this week)
  • 5-yr: +5 bps to 4.21% (+16 bps this week)
  • 10-yr: +8 bps to 4.36% (+13 bps this week)
  • 30-yr: +9 bps to 4.56% (+6 bps this week)

• News:
  • The Atlanta Fed's GDPNow forecast for Q4 GDP was lowered to 2.3% from 2.7% in the initial estimate.
  • China's National People's Congress will be held next week. 
  • Bank of Japan Governor Ueda said that the timing of the next rate hike has not been determined and that the market is regaining stability despite ongoing uncertainties.
  • China's October Caixin Manufacturing PMI hit 50.3 (expected 49.7; last 49.3).
  • Japan's October Manufacturing PMI hit 49.2 (expected 49.0; last 49.7).
  • South Korea's October trade surplus reached $3.17 bln (expected surplus of $4.23 bln; last surplus of $6.66 bln) as imports rose 1.7% yr/yr (expected 2.0%; last 2.2%) and exports rose 4.6% yr/yr (expected 6.9%; last 7.5%). October Manufacturing PMI hit 48.3 (last 48.3).
  • Hong Kong's September Retail Sales fell 6.9% yr/yr (last -10.1%).
  • Australia's October Manufacturing PMI hit 47.3 (expected 46.6; last 46.7). Q3 PPI was up 0.9% qtr/qtr (expected 0.7%; last 1.0%), rising 3.9% yr/yr (last 4.8%). October Commodity Prices were down 7.8% yr/yr (last -10.8%). September Home Loans ticked up 0.1% m/m (last 2.4%) and Invest Housing Finance fell 1.0% m/m (last 1.8%).
  • New Zealand's September Building Consents were up 2.6% m/m (last -5.2%).
  • U.K.'s October Nationwide HPI was up 0.1% m/m (expected 0.3%; last 0.6%), rising 2.4% yr/yr (expected 2.8%; last 3.2%). October Manufacturing PMI hit 49.9 (expected 50.3; last 51.5).
  • Swiss October CPI was down 0.1% m/m (expected 0.0%; last -0.3%) but up 0.6% yr/yr (expected 0.8%; last 0.8%). September Retail Sales were up 2.2% yr/yr (expected 2.5%; last 2.7%). October procure.ch PMI hit 49.9 (expected 49.5; last 49.9).
• Today's Data:
  • October nonfarm payrolls increased by 12,000 (Briefing.com consensus 120,000). The 3-month average for total nonfarm payrolls decreased to 104,000 from 148,000. September nonfarm payrolls revised to 223,000 from 254,000. August nonfarm payrolls revised to 78,000 from 159,000.
    • October private sector payrolls decreased by 28,000 (Briefing.com consensus 105,000). September private sector payrolls revised to 192,000 from 223,000. August private sector payrolls revised to 37,000 from 114,000.
    • October unemployment rate was 4.1% (Briefing.com consensus 4.1%), versus 4.1% in September. Persons unemployed for 27 weeks or more accounted for 22.9% of the unemployed versus 23.7% in September. The U6 unemployment rate, which accounts for unemployed and underemployed workers, held steady at 7.7%.
    • October average hourly earnings were up 0.4% (Briefing.com consensus 0.3%) versus a downwardly revised 0.3% (from 0.4%) in September. Over the last 12 months, average hourly earnings have risen 4.0%, versus 3.9% for the 12 months ending in September.
    • The average workweek in October was 34.3 hours (Briefing.com consensus 34.2), versus an upwardly revised 34.3 hours (from 34.2) in September. Manufacturing workweek was little changed at 39.9 hours. Factory overtime dipped 0.1 hour to 2.8 hours.
    • The labor force participation rate decreased to 62.6% from 62.7% and the employment-population ratio fell to 60.0% from 60.2%.
  • The October ISM Manufacturing Index checked in at 46.5% (Briefing.com consensus 47.6%) versus 47.2% in September. The dividing line between expansion and contraction is 50.0%, so the October reading, which is the lowest in 2024, suggests the pace of contraction in the manufacturing sector accelerated from the prior month. This was the seventh straight month (and 23rd out of 24) that economic activity in the manufacturing sector contracted.
    • The key takeaway from the report is that it has reinforced the understanding that conditions in the U.S. manufacturing sector remain weak.
  • The S&P Global U.S. Manufacturing PMI hit 48.5 in the final reading for October, up from the preliminary reading of 47.8 and September's final reading of 47.3.
  • Total construction spending increased 0.1% month-over-month in September (Briefing.com consensus 0.0%) following an upwardly revised 0.1% increase (from -0.1%) in August. Total private construction was flat month-over-month while total public construction was up 0.5% month-over-month. On a year-over-year basis, total construction spending was up 4.6%.
    • The key takeaway from the report is that private construction activity was subdued in September.
• Commodities:
  • WTI crude: +0.3% to $69.52/bbl
  • Gold: UNCH at $2749.50/ozt
  • Copper: +0.7% to $4.37/lb
• Currencies:
  • EUR/USD: -0.4% to 1.0841
  • GBP/USD: +0.3% to 1.2929
  • USD/CNH: +0.2% to 7.1372
  • USD/JPY: +0.6% to 152.99
• The Day Ahead:
  • Monday: September Factory Orders (prior -0.2%) at 10:00 ET and $58 bln 3-yr Treasury note auction results at 13:00 ET
  • Tuesday: (Election Day) September Trade Balance (prior -$70.4 bln) at 8:30 ET; final October S&P Global Services PMI (prior 55.2) at 9:45 ET; October ISM Services (prior 54.9%) at 10:00 ET; and $42 bln 10-yr Treasury note auction results at 13:00 ET 
  • Wednesday: Weekly MBA Mortgage Index (prior -0.1%) at 7:00 ET; weekly crude oil inventories (prior -0.515 mln) at 10:30 ET; and $25 bln 30-yr Treasury bond auction results at 13:00 ET
  • Thursday: Preliminary Q3 Productivity (prior 2.5%), preliminary Q3 Unit Labor Costs (prior 0.4%), weekly Initial Claims (prior 216,000), and Continuing Claims (prior 1.862 mln) at 8:30 ET; September Wholesale Inventories (prior 0.1%) at 10:00 ET; weekly natural gas inventories (prior +78 bcf) at 10:30 ET; November FOMC Rate Decision (prior 4.75-5.00%) at 14:00 ET; and September Consumer Credit (prior $8.9 bln) at 15:00 ET
  • Friday: Preliminary November University of Michigan Consumer Sentiment (prior 70.5) at 10:00 ET