Soft Patch: Jobs Stall, Yields Jump, Oil Risk Rises
Markets ended October on a wary note as hiring nearly stalled, long rates rose despite Fed easing, and geopolitical tensions repriced energy risk. Consumers kept spending while disinflation continued, but manufacturing contracted again, underscoring a late-cycle split between services and goods. Equities slipped modestly and rate volatility returned, reinforcing a tilt toward quality balance sheets and selective duration.
Jobs Stall: Payrolls Up Just 12,000
A sharp hiring slowdown signals cooling labor demand. Nonfarm payrolls rose by only 12k in October as unemployment held at 4.1%; temporary help fell 49k (down 577k since March 2022) and manufacturing shed 46k jobs largely due to strikes. Earlier benchmark revisions shaved 818k jobs from prior totals, revealing a softer trend than previously reported. Softer labor supports gradual Fed easing, but higher market yields may blunt transmission; watch revisions, openings, wages and hours.
Labor cracks are widening, increasing cut odds but pressuring earnings expectations.
Yields Jump Despite Fed Cuts
Rising term premium and fiscal worries tighten conditions. The 10-year Treasury finished near 4.28%, up ~50 bps since mid-September, with a steeper curve and the MOVE index at its highest since December 2023. Credit stayed resilient (IG spreads ~84 bps) while mortgages hovered near 6.7%, restraining housing and other rate-sensitive activity. Positioning favors a barbell or intermediate duration, higher quality credit, and selective MBS; watch refunding, auction demand, and term premium gauges.
Financial conditions tightened even as policy eases, keeping duration and quality paramount.
Spending Holds Up, Disinflation Grinds On
Steady demand with easing inflation keeps soft-landing hopes alive. Personal income rose 0.6% m/m and PCE spending 0.4%, with services up $74.7B and goods down $2.3B on energy drag. Headline PCE increased 0.2% m/m (2.3% y/y) and core 0.3% (2.8% y/y), showing ongoing but incomplete progress. If labor cools further and core drifts toward 2.5% y/y, the path to gradual cuts looks smoother; beneficiaries include healthcare and housing-related services.
Growth is uneven but resilient, reducing hard-landing risk while supporting measured easing.
Middle East Tensions Reprice Oil Risk
Supply disruption risk lifts crude and safe havens. Heightened Israel–Iran tensions—and President Biden saying “we’re discussing” strikes on Iranian oil facilities—pushed Brent toward $80 for the first time since summer. Iran supplies ~3% of global output; targeted strikes are manageable, but export-route disruptions could tighten balances; October saw crude up ~2–3%, gold +3.8%, silver +4.7%, while natural gas fell ~20%. Upstream energy benefits, while fuel-intensive sectors face margin pressure; watch OPEC+, shipping insurance and tanker flows.
Risk premia in oil are back, adding another inflation wildcard.
Manufacturing PMI Hits New 2024 Low
Industrial contraction contrasts with services resilience. ISM Manufacturing fell to 46.5 (7th straight contraction; 23 of the past 24 months), with new orders at 47.1 and production at 46.2. Weakness ties to strike-related job losses and temp-help retrenchment, heightening sensitivity to higher long rates and tighter credit. Goods-focused sectors face earnings pressure; a trough in new orders would be the first green shoot.
Industrial softness is entrenched, keeping cyclicals vulnerable and inventories in focus.
Quick Hits
- Equities: S&P 500 -0.9% in October (five-month streak snapped); small caps lagged; energy and healthcare outperformed as mega-cap guidance weighed.
- Global policy/FX: ECB cut 25 bps to 3.25%; USD +3.1% (first gain in four months) pressured EM; rate volatility rose while IG spreads stayed tight (~84 bps).
- Housing: New-home sales +4.1% m/m; existing sales -1.0%; inventory 1.39m (+23% y/y); 30-year mortgage ~6.72%; affordability improved slightly.
- China: Exports +12.7% y/y (fastest in 19 months); imports -2.3%; retail sales +4.8%; industrial output +5.3% y/y; property remains a drag.
- Crypto: Bitcoin hit a euro all-time high (~€68k), +~13% in October, as US spot ETFs drew ~$5.4B inflows and topped 1 million BTC held.
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