Nonfarm payroll data shows an increase of 12,000 jobs in October, falling far short of the expected 106,000. This data indicates potential weakness in the labour market. On the other hand, the unemployment rate remained unchanged at 4.1%, aligning with expectations. The wage inflation increased slightly, with average hourly earnings rising to 4% from the previous 3.9%. The ISM Manufacturing PMI also declined to 46.5, indicating a deeper contraction in manufacturing activity than expected. However, the Services PMI painted a more optimistic picture, climbing to 54.8. This signals strong expansion in the services sector. These mixed signals have fueled market expectations of imminent interest rate cuts. A 25 basis point reduction is expected next week, with a high probability of an additional cut in December.
The softer-than-expected labour market data and the downturn in manufacturing highlight concerns about economic growth. However, robust service sector performance and persistent wage inflation limit the extent of this pressure. The release of this employment data caused the US dollar (DXY) to drop in the first hour, but the decline was capped by strong buying pressure, leading to a rally in the final hours before market close. The high volatility in the US dollar is due to uncertainty surrounding the upcoming US election, which is set for next week. Additionally, increased tensions between Iran and Israel ahead of the election outcome are further intensifying market volatility. Reports, such as news of Iran preparing for a strike on Israel, are escalating tensions within the region.
