US employment data released last week showed strong growth with 254,000 jobs added compared to the weak forecast of 147,000, possibly triggering a selloff in the bond market. The Treasury yields reached above 4% as a result, levels not seen since August. The 10-year Treasury yield is sitting at 4.03%, while the 2-year yield reached 4.02%, a rather dramatic shift in market sentiment as traders now see less than 50 basis points of rate reductions through year-end. The latest CPI report, on the other hand, shows headline inflation dropped to 2.4% while core inflation rose to 3.3%, leading markets to expect two 0.25% Fed rate cuts by year-end with 88% odds for the November cut. Investors are rapidly scaling back their expectations for aggressive Federal Reserve rate cuts in fear of reinflation.
EQUITY
US equity markets retreated after a strong rally earlier this week, reacting to hot inflation data. It does little compared to job data last week, with expectations for a Federal Reserve rate cut next month increasing for November and December. In sector performance, real estate saw the steepest decline while energy led gains, supported by rising oil prices due to Hurricane Milton and Middle East supply concerns. Allstate Corp. gained on assessment that the hurricane did less damage than previously expected.
GOLD
Gold prices are moving higher toward $2,650 despite mixed signals from US economic data showing higher-than-expected inflation but also increased jobless claims. The market is evaluating the Federal Reserve's potential policy moves, with current expectations showing an 88% probability of a 25 basis point rate cut in November. While geopolitical tensions provide some support for gold as a safe-haven asset, the precious metal is still on track for its second weekly decline.
OIL
Oil prices fell Friday but rose for the second week as markets watched Middle East tensions and U.S. hurricane damage. Israel's propensity to strike Iran's oil sites is high in response to recent attacks, and it could further damage supply chain, while Hurricane Milton hitting Florida could possibly cut U.S. fuel demand. High U.S. inflation data suggests interest rates will stay up longer, which could lower oil demand.
CURRENCY
The U.S. dollar weakened after CPI data triggered a short rally, pressured by higher-than-expected jobless claims, while the yen held steady due to Bank of Japan rate hike signals. The Chinese yuan and South Korean won strengthened modestly on expectations of fiscal stimulus in China and a rate cut by South Korea’s central bank. The New Zealand dollar regained footing after RBNZ cut 50 basis points on Tuesday that saw it fall to a low of 1.22% against the dollar.
