Markets In-Review: Markets Rattle on Goldilocks Nonfarm

■ U.S. Nonfarm payrolls points to moderate 156K jobs added to economy in Sept

■ August’s NFP figure revised upwards to 167K, from 151K originally

■ Markets still price-in elevated 64% odds for Fed hiking rates in December’s meeting

■ GBP flash crashes at start of Friday’s session, hitting 30 year low vs. USD

Markets were treated with a disappointment pill on Friday, as September’s Nonfarm Payrolls figure indicated 156K jobs added to the U.S. economy, substantially below the 172K expected by analysts. Unemployment, similarly, increased back to 5.0%, rising from 4.9% last month. Headline data was countered somewhat by August’s figure being revised to indicate a 167K jobs gain, from an original 151K increase.

The USD responded with an initial weakening as the data was out, leading EUR/USD to 1.1205, hinting, perhaps, that this is not negative enough to put a December Fed hike off the table. From here the pair was fairly volatile with the USD strengthening to around USD 1.1160 needed to purchase each Euro, then back to 1.1201.

The USD’s movements was correlated with changing expectations for a Fed rate hike on December. The yield of the policy sensitive U.S. treasury 2 year bond, which moves inversely to its price had fluctuated between 0.864% and 0.830% during the day eventually settling at the lower end of this band. In spite of this, expectations, derived from the market, for a rate hike by the Fed in its November 2nd meeting are still fairly elevated at 17.1%. December’s odds, additionally, stand at no less than 64.3%.

Market reaction to the data was also confirmed by Fed Vice Chairman Fischer, who called the jobs report “pretty close” to “goldilocks.” In spite of the uptick in Unemployment, Fischer also said that the data is “fully consistent” with a declining trend in unemployment and that the economy has been remarkably successful in decreasing joblessness.

Giving a second, more thorough, inspection to Friday’s Nonfarm print reveals a gloomier image, which could explain aforementioned market behavior. Primarily, gains during the month seems to have stemmed from a 430 K increase of part time jobs. The number of full time jobs, alternatively, actually declined by 5K. Similarly, the number of employees holding more than one job increased by 301K, leading the number of multiple jobholders to 7.863 M, its highest since the financial crisis.

Pound’s flash crash removes certainty from markets

Investor reasoning that the largest impact of the Brexit was behind us was shaken on Friday, with the GBP flash-crashing at the first minutes of the day’s session in Tokyo’s stock exchange. GBP/USD’s 6.1% fall to 1.1841 marked the lowest for the currency pair since 1985. The pair was soon to recover, several minutes later, settling at around 1.2430 and a 1.4% daily decline. The crash itself, however, was trailed by ample speculation on its causes. Algorithmic trading, which, apparently is the new term for “fat fingers” was the obvious suspect, with the U.S. 2010 flash crash coming to mind. Another Possible reason included lack of liquidity amid an aggressive sell order. French president Hollande stating that the E.U. would be though in its negotiations with the U.K. over Brexit was also suggested to be the culprit. The latter point has been augmented by U.K. Prime Minister Theresa May, who said that formal actions to take the U.K. out of the European Union would kick off no later than March of next year.

As was the case in previous weeks, oil prices are still in the news, with an impressive gain, to USD 50.74 per barrel hit on Friday – the highest for the black gold since June. Speculation of a production freeze by OPEC continued to play the catalysts for the increases this week.