The recently released September non-farm payroll data from the U.S. was impressive. The specific figures are as follows: the unemployment rate stood at 4.1%, marking two consecutive months of decline. Additionally, both job creation and wage growth exceeded expectations. In response, the U.S. dollar index surged, reaching a high of 102.65, while the offshore yuan plunged by over 400 points, briefly hitting the 7.1 mark.

First, the strong performance in the non-farm payroll data can be attributed to a decline in both the quit rate and layoff rate in the U.S., with both indicators remaining at low levels. At the same time, corporate hiring in the U.S. has slowed, and unemployment has decreased. This suggests that U.S. companies are neither hiring nor laying off workers, maintaining the status quo. Moreover, people are neither seeking new jobs nor quitting their current ones, creating a unique situation. New changes may only become apparent when October’s data is released next month.

Divergence on Rate Cuts in September Larger Than Previously Expected

In September, the Federal Reserve kicked off an easing cycle by cutting rates by 50 basis points, breaking from its usual gradualist approach to interest rate adjustments. Fed Chair Jerome Powell described this significant rate cut as a "recalibration," emphasizing that a 50 basis point cut would not become the norm.

Although only one official voted against the 50 basis point cut, discussions during the meeting revealed that “some” policymakers preferred a more conventional 25 basis point reduction, and “a few” had initially considered supporting a 25 basis point cut.

The meeting minutes stated that the “vast majority” supported the 50 basis point cut. According to Derek Tang, an economist at Washington-based LH Meyer/Monetary Policy Analytics, this was a “rare phrase,” noting that they couldn’t claim “nearly everyone” was on board with the decision.

For some time, as U.S. inflation continued to decline, the Fed’s focus shifted to the labor market. Especially with September’s non-farm payroll data being the first released after the Fed began cutting rates, the quality of the data became a key indicator for the market to assess the Fed’s future rate cut trajectory.

Due to the unexpectedly strong non-farm data, market expectations for further rate cuts this year sharply contracted. The CME’s “FedWatch Tool” showed that after the non-farm data release, the market completely erased bets on a 50 basis point rate cut by the Fed in November, and the likelihood of a 25 basis point cut rose to nearly 100%. Before this, the odds of a 25 and 50 basis point cut were roughly “70-30.”

In terms of asset prices, the U.S. dollar index strengthened, breaking through the 102 level, and by the time of this report from Shanghai Securities News, it remained above that threshold. Meanwhile, as concerns about an economic recession eased, the three major U.S. stock indices recorded four consecutive weekly gains. The yield on the 10-year U.S. Treasury note, often referred to as the “global anchor for asset pricing,” has returned to 4%, reaching its highest level since August.

Before the Fed’s November meeting, several key data points, including September’s CPI, October’s non-farm payroll, and Q3 U.S. GDP growth, will be available for the Fed’s assessment. Given the volatility in non-farm payroll data, the market believes more indicators are needed to accurately gauge the labor market's true condition.

Due to recent short-term events, such as major port strikes and Hurricane Helene, China Minsheng Securities’ macro team predicts that the October non-farm payroll data may have some “flaws.” Therefore, even if the October employment data deteriorates, the Fed might still act cautiously and opt for a 25 basis point rate cut.

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