US nonfarm payrolls increase by just 12,000 in October

The monthly US non-farm payroll report fell to a net gain of just 12,000 jobs in October, the lowest reading since 2020. This was far below the previous month’s surprise blow-out of 223,000 (revised down from the initial print of 254,000) and the consensus forecast of 100,000. However, the result was complicated by the effect on the labour market of the two hurricanes which struck the southwest of the country in the month, and strike activity which negatively affected job gains in the manufacturing sector. The unemployment rate held steady at 4.1%, as expected, while average hourly earnings rose 0.4% m/m, up from 0.3% previously. The uncertainty around the data point complicates the Fed’s decision-making process, following as it does the unexpected pick-up in core PCE seen in data released on Thursday. We expect a 25bps cut from the Fed this month, followed by another in December.

The US ISM manufacturing survey fell to 46.4 in October, down from 47.2 the previous month and missing the predicted 47.6. This marked the seventh consecutive sub-50 contractionary reading for the index with production contracting at the fastest pace since April 2021. Uncertainty around the upcoming election appears to have weighed on sentiment in the last reading ahead of Tuesday’s vote. Prices paid by firms rose at the fastest pace in five months after falling in September for the first time since December 2023.

OPEC+ has delayed its planned increase in oil production, now pushing back the scheduled date to the start of next year, rather than December, which was itself pushed back from the initial plan of October. Questions over the strength of demand and new supply from other non-OPEC+ producers has put pressure on oil prices in recent months, especially as the risk premium associated with Middle East tensions has dissipated, and while OPEC states that it does not target a specific price, the organisation likely has this on its mind. For the UAE and other GCC oil producers, extending the oil production curbs would affect headline output, and we will be looking at our GDP growth forecasts as these extensions continue. This assumes there is strong compliance with the target levels, something that OPEC also ‘reiterated their collective commitment to.’

Today’s Economic Data and Events

11:00 Turkey CPI inflation, October, % y/y. Forecast: 48.3%

19:00 US factory orders, September, % m/m. Forecast: -0.4%

Fixed Income

• US treasury yields rose to the highest level since July on Friday as markets looked through the weak jobs report. After initially rallying post the jobs report, in the end the 10yr added 10bps on the day to close at 4.3836%, up 14bps on the week, while the 2yr yield ended Friday at 4.2054%, up 4bps on Friday and 10bps over the week.
• Markets are pricing in just shy of two 25bps cuts to the Fed funds rate by the end of the year.
• UK gilts closed all but flat on Friday, taking a breather after the post-budget sell off seen earlier in the week. The 2yr yield ended the week at 4.430%, up 27bps over the week, while the 10yr was at 4.445%, up 21bps.

FX

• The dollar index closed almost flat against its basket of peer on the week, belying some of the moves seen through the previous five days.
• GBP closed at 1.2924 Friday, down 0.3% w/w, while EUR was at 1.0834, up 0.4%. JPY was down 0.5% at 153.01.

Equities

• US equity indices pared some of the losses earlier in the week on Friday, with all three major benchmark indices posting gains on the day. This meant that the Dow Jones, the S&P 500, and the NASDAQ ended Friday down 0.2%, 1.4%, and 1.5% w/w respectively.
• Locally, the DFM closed up 3.2% w/w while the ADX added 1.6%.

Commodities

• Headline-driven gains later in the week were not enough to offset the sharp fall in oil prices logged on Monday, and both benchmarks closed lower compared to the previous Friday. Brent futures ended the week at USD 73.1/b, down 3.9% w/w, while WTI closed at USD 69.5/b, down 3.2%.