Week Ahead: Weak NFP Cuts Fed Hike Bets, Putting Yields, Gold and S&P 500 in Focus

Key Takeaways

• September US Nonfarm Payrolls rose by only 29,000, well below the 90,000 expected, while unemployment increased from 4.1% to 4.2%.
• The probability of an October Fed rate hike fell from around 70% at the start of last week to roughly 22% after the employment report.
• Treasury yields rebounded after an initial drop, pushing gold and Bitcoin back from their early gains, while US equities held up better.
• Traders are watching USDX, EURUSD, GBPUSD, XAUUSD, SP500, BTCUSD and USDJPY as markets position around US services data, the FOMC minutes and BOJ Governor Ueda's speech.

Markets enter the first full week of October with the labour market at the centre of the outlook. September payrolls came in at just 29,000, average hourly earnings rose only 0.1% month-on-month, and revisions weakened the picture further. August payroll growth was revised down from 162,000 to 133,000, and July and August combined lost 60,000 jobs through revisions.

Why Traders Are Watching Global Markets

The report extended a shift that had started earlier in the week. US job openings fell by 256,000 to 7.079 million, and softer PCE inflation eased some of the pressure on the Fed to raise rates again immediately. Rate-hike expectations dropped from around 70% to 38% as the data arrived, then to around 22% after Friday's report.

The reaction across markets was less straightforward. The 10-year Treasury yield fell towards 5.16% after NFP before reversing higher, as investors returned to inflation risks, elevated oil prices and concerns around government debt and Treasury supply. Short-term Fed expectations have softened, but longer-term yields remain high.

Key factors influencing markets include:

• Federal Reserve policy: Weaker labour data supports a hold in October, though inflation and incoming data can still change the outlook.
• Treasury yields: A renewed rise in long-term yields could pressure gold and equities, while lower yields could weigh on the dollar.
• US labour market: Further deterioration could shift attention from rate expectations towards household spending and corporate earnings.
• Oil and inflation: Elevated energy prices keep inflation risks in focus.
• Bank of Japan: Governor Ueda's speech on Tuesday may offer signals on the rate path and the yen.

Key Movements of the Week

USDX

After NFP revealed a weaker job market, USDX was expected to move lower but the move did not follow through. Monitor Monday’s move to see if sellers finally appear. If it does, monitor price action at 101.00.

SP500

SP500 traded up from the 7635 monitored area once again. Should price consolidate next, SP500 could trade higher.

XAUUSD

Should Gold consolidate further, look for bearish price action at 4280. But do not use this area if the price breaks 4111.31 first before testing 4280.

BTCUSD

BTC found support at the 82085 monitored area. Should BTC trade lower, look for bullish price action at 78450 or 76450.

USDJPY

USDJPY came close to 158.75 and traded lower, forcing the price to consolidate further. If price trades lower, monitor price action at 155.85.

What to Watch Next

The main scheduled catalysts this week are US ISM services data, Governor Ueda's remarks on Tuesday and the FOMC minutes. Treasury yields will be the key link between them. Lower yields could reinforce pressure on USDX and support gold, equities and other risk assets, while another rise could produce the opposite reaction even if the Fed stays on hold in October. Attention then turns to US CPI on 14 October, followed by PPI and retail sales on 15 October.

For a deeper analysis of the Fed outlook, upcoming events and technical levels across key markets, read this article.