September’s jobs report shows that the job market remains strong and the Federal Reserve will have to do more to slow the pace of inflation.
U.S. 9-month employment data report
US job growth slowed in September, but not by as much as most market observers expected. Nonfarm payrolls rose 263,000, down 17% from August, but 250,000 more than expected.
The unemployment rate fell to 3.5% from expectations of 3.7% and the labor participation rate was at 62.3%, essentially the same as the 62.4% rate in the previous month.
But the surprising drop in the unemployment rate and a rally in workers’ wages sent a clear message to markets that more big rate hikes are on the way.
Ron Hetrick, senior economist at workforce data provider Lightcast, said:
Indeed, average hourly earnings rose 5% year-on-year in September, down slightly from the 5.2% pace in August but still indicative of an economy where the cost of living is falling. higher. Hourly earnings rose 0.3% monthly, the same as in August.
The market expects November to be a rate hike
Fed officials have pointed out that a historically tight labor market has pushed Inflation to near its highest level since the early 1980s.
In a speech on October 6, Fed Governor Christopher Waller issued a warning that the next day’s report would not detract from his view on inflation.
“In my view, we have yet to make meaningful progress on inflation, and until that progress is both meaningful and sustainable, I favor continued rate hikes, along with a cut in the rate of inflation. persistent decline in the Fed’s balance sheet, to help contain aggregate demand,”
The October 7 nonfarm payrolls report only reinforces that the conditions for inflation do exist.
For financial markets, that means it’s almost certain that the Fed will approve its fourth consecutive 0.75 basis point hike in its meeting in early November.
The CME’s FedWatch tool also shows an 82.3% chance of a 75 basis point rate hike in November, up from 56.5% just a week ago.
The next question might be whether market participants are starting to consider the probability of a 100 basis point increase.
Pessimistic sentiment from the market
The September pay rise offers some hope that the labor market might be strong enough to withstand the monetary tightening that only occurred when former Fed Chairman Paul Volcker reduced inflation in the early 1980s with interest yield was just over 19% at the beginning of 1981.
Wall Street commentary focused on the uncertainty of the way forward:
From KPMG senior economist, Ken Kim:
“Normally, in most other economic cycles, we would be delighted with such a solid report, especially from the labor market side. But this only speaks volumes about the upside-down world we are in, because the strength of the unemployment report keeps pressure on the Fed to keep raising rates going forward. “
Ron Temple, head of US equity at Lazard Asset Management also shared:
“While job growth is slowing, the US economy is still too hot for the Fed to hit its inflation target. The road to a soft landing is becoming more and more difficult. If there were still any pigeons on the FOMC, today’s report could have dropped their rankings even further. “
The Atlanta Fed’s GDPNow tracker puts growth for the quarter at 2.9%, an increase after the economy saw consecutive negative readings for the first two quarters of the year, responding Technical definition of recession.
However, the Atlanta Fed’s wage tracker showed workers’ wages were growing at an annual rate of 6.9% through August, even faster than the Bureau of Labor Statistics figures. The Fed’s tracker uses Census data rather than BLS data to inform its calculations and is often watched more closely by central bank policymakers.
All of this makes the inflation war seem ongoing, even as payroll growth is slowing.
Stocks and Crypto fell at the same time
The October 7 labor market report on jobs was better than expected, which is bad news for risk assets in the current environment. Investors are worried about rampant inflation leading to a large Fed rate hike and the economic damage it could cause.
The decline of traditional stocks
The drop in traditional stocks was evident after the report.
In traditional financial markets, the Dow Jones Industrial Average (DJIA), Nasdaq Composite and S&P 500 technology index fell 2.1%, 3.8% and 2.8%, respectively.
The decline of the Crypto Market
Bitcoin (BTC) plummeted at the start of the US session, dropping 1.9% after the jobs report was released. The drop was further exacerbated by excessive trading volume, putting downward pressure on prices.
The price recovered slightly in the following hours before falling back down to around $19,450.
Ether (ETH) , which still maintains a close relationship with BTC, is traded in a similar fashion. The second-largest cryptocurrency by Market Capitalization is down 1.7% at 12 UTC, also on higher-than-average trading volumes.
Several on-chain analytics allow the forecast to track the direction of the upcoming BTC.
- Where the purchasing power declines, the current level of BTC will suggest more trouble to come, at least in the short term. On-chain data also shows that the movement of stablecoins into centralized exchanges is increasing, while the amount of BTC pouring into exchanges is decreasing.
- As stablecoins can represent investors looking to invest for the long term, the recent rise implies an upbeat sentiment among investors, who may simply be waiting for their desired price. them to buy in.
- In contrast, BTC inflows into exchanges have decreased. Typically, BTC moves to an exchange showing a willingness to sell. The degree of change or flatness in BTC outflows over the next few days will be key to assessing the next price direction.
Conclusion
The US employment data report in September confirmed that the Fed has a long way to go in the fight against inflation. A large interest rate hike is expected in the near future, creating pessimism for investors in the financial markets, leading to a decline in stocks and crypto.
Although onchain data shows positive signals for bitcoin price support, in the near term, investors need to continue to be cautious before making a decision to invest, especially as FED still keep interest rates rise.
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