U.S. Treasury bonds jumped on Tuesday after a jobs report showed hiring slowing more than economists had forecast, sending yields down across the curve.
Bond market reacts to softer jobs data
The Bureau of Labor Statistics said non‑farm payrolls rose by 170,000 in September, well below the 210,000 median estimate of analysts surveyed by Reuters. The unemployment rate edged up to 4.0%, also missing expectations.
"The data gave the market a reason to pause the Fed’s tightening cycle," said a senior trader at a New York investment bank.
U.S. 10‑year Treasury yields fell 6 basis points to 3.78%, while the two‑year slipped 8 basis points to 4.95%, marking the biggest one‑day decline in yields since early 2024. The rally lifted bond‑focused exchange‑traded funds, which gained roughly 1.2% on the day.
Analysts noted that the slowdown could signal the labour market reaching the tail end of its post‑pandemic boom, giving the Federal Reserve more leeway to consider a rate‑cut later in the year. The Fed’s policy rate remains at the 5.25‑5.50% range, the highest in four decades.
Equity markets responded with a modest sell‑off; the S&P 500 slipped 0.4% as investors reassessed growth expectations. The dollar also weakened, falling 0.3% against the euro, a move that could buoy export‑oriented firms.
Eurozone inflation and UK fuel prices add pressure
Across the Channel, core inflation in the eurozone crept up to 2.5% in September, a tenth of a percentage point higher than August’s 2.4%, according to Eurostat. The rise excludes volatile energy, food, alcohol and tobacco, and reflects lingering price pressures in services and housing.
The uptick complicates the European Central Bank’s effort to steer inflation back to its 2% target. ECB President Christine Lagarde has hinted that further rate hikes could be on the table if the trend persists, even as growth in the bloc shows signs of slowing.
In the United Kingdom, diesel fuel hit a fresh record of £2.00 per litre on the pumps, the highest level since the early 1990s. The surge follows a sharp rise in crude oil prices after Iran’s recent escalation in the Persian Gulf, which has tightened global supply.
Higher fuel costs are expected to push up transport and logistics expenses, feeding through to consumer prices. The Office for National Statistics warned that the diesel price spike could add up to 0.3 percentage points to headline inflation in the coming months.
Outlook for central banks
The confluence of a softer U.S. jobs market, stubborn euro‑zone core inflation and soaring UK fuel prices creates a mixed backdrop for policymakers. The Federal Reserve is set to meet on 15 October, with markets pricing in a roughly 30% chance of a 25‑basis‑point cut.
Meanwhile, the ECB’s next policy decision, scheduled for 26 October, will likely focus on whether to raise rates again or hold steady, a choice that will hinge on the trajectory of core inflation and wage growth.
In London, the Bank of England faces pressure from the diesel price shock, though it is not expected to adjust rates before its 21 October meeting, where officials will assess whether the fuel surge is a temporary blip or a longer‑term inflation driver.
Investors will be watching the interplay of these data points closely, as divergent monetary paths could reshape capital flows between the United States, Europe and the United Kingdom in the weeks ahead.
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