Title: Strong Jobs Report Diminishes Likelihood of 50 Basis Point Rate Cut by Fed - Danske Bank Analysis
Investing.com - In a note on Monday, Danske Bank stated that the chances of a 50 basis point rate cut by the U.S. Federal Reserve have decreased following a much stronger-than-expected jobs report. The latest U.S. employment data showed non-farm payrolls growing by 254,000 in September, surpassing Danske's forecast of 160,000 and the consensus estimate of 150,000. Additionally, average hourly earnings rose by 0.4% month-over-month, outperforming expectations of 0.2%, and the unemployment rate dropped to 4.1%, better than the anticipated 4.2%.
The positive labor market data led to a surge in U.S. Treasury yields, with 2-year yields rising over 20 basis points and 10-year yields increasing by more than 10 basis points. As a result, markets have backed away from speculating on a more aggressive 50 basis point rate cut from the Fed. Danske Bank mentioned, "Markets are now very closely aligned with our call for both 2024 and 2025 in terms of Fed pricing."
The report also noted that the strong jobs data supports the "soft-landing" scenario for the U.S. economy. Global equities saw a sharp rise, with U.S. indices like the S&P 500, Nasdaq, and Dow Jones Industrial Average all posting gains on Friday. Small caps, in particular, outperformed, benefiting from reduced recession fears and higher yields.
Overall, Danske Bank believes that the robust labor market performance suggests the Fed is less likely to implement a 50 basis point rate cut, and markets are now pricing in more modest adjustments going forward.
Analysis:
The strong jobs report in the U.S. has led to a decrease in the likelihood of a 50 basis point rate cut by the Federal Reserve. This has resulted in a surge in U.S. Treasury yields and a positive impact on global equities. Investors should take note of this development as it indicates a more stable economic outlook and could potentially affect their investment decisions in the future.