US stocks ended Thursday, October 1, modestly higher as Treasury yields retreated after seven days of gains, breaking a streak that had pushed them to their highest levels in several years. However, Friday's employment report was the exception, with Nonfarm payrolls rising just 29,000 in September, well below expectations, while July and August were revised down by a combined 60,000. The unemployment rate edged up to 4.2%, marking a significant shift from earlier expectations. According to reports from Investing.com India, this disappointing data has eased Fed hike bets significantly, with odds of a 25bps hike at the October 27-28 FOMC meeting falling to 22%, while odds of one at the December meeting dropped to 67%. The 5% level on the U.S. 10-year Treasury yield has been an "important psychological threshold" for investors, as noted by David Clewell, a portfolio manager at T. Rowe Price.
With inflation holding well above the Federal Reserve's 2% target, the disappointing jobs data has further complicated the Fed's rate hike timeline. The CME's FedWatch Tool shows about a 70% probability of a rate hike this month, though this has retreated from earlier levels after the Core Personal Consumption Expenditures Price Index rose 3% in August, matching July's print and coming in well below the market expectation of 3.3%. Fed Chair Kevin Warsh explained that the jobless rate remained low while openings and hours increased, adding that "the labor side of the Fed's remit is in good shape." However, the 2-year Treasury yield is at 4.78%, well above the 4.00% top of the FFR target range, with 12-month futures at 4.70%. The median longer-run neutral rate estimate in September's dot plot rose to 3.25%, a post-pandemic high, suggesting the Fed may need to hike rates further to reach neutral territory.
Despite the disappointing jobs report, most of last week's economic indicator reports were strong, with initial jobless claims falling to near a 57-year low, ADP private payrolls rising 90,000 in September, and the ISM Manufacturing PMI remaining in expansion for a 9th straight month. According to Investing.com India, the ISM Manufacturing Employment subindex rose to 52.7 from 51.2 last month, while the ADP Employment report came in at 90K jobs, up from last month's 36K reading. Additionally, the four-week moving average of initial unemployment claims fell to 200K, down from 207K last month. However, the 4-week moving average of initial unemployment claims rose to 20,000 for the week ended September 19, up from a late-July bottom of 8,250, though this pace closely matched September's ADP private payrolls gain. These indicators suggest potential for above-expected job growth, though the disappointing jobs report has tempered expectations.
The disappointing jobs data has created mixed market responses across global markets. US stock futures ticked higher as the soft jobs data eased Fed hike bets, providing some relief to markets ahead of the crucial September jobs report. European shares edged higher on Friday (October 2, 2026), with Britain's FTSE 100 climbing 0.5% to 10,485.00, France's CAC 40 rising 0.6% to 7,883.49, and Germany's DAX up 0.8% to 25,129.78. However, Asian markets were mixed, with Japan's Nikkei 225 falling 0.9% to 68,309.46, South Korea's Kospi adding 0.5% to 7,003.74, and Hong Kong's Hang Seng losing 2.6% to 23,972.29. U.S. futures edged up after U.S. Treasury yields held steadier early Friday. The US Dollar Index (DXY) fell to 157.63 Japanese yen from 158.09 yen, while the euro was trading at $1.1255, up from $1.1244. OCBC analysts warn that "the risk of an upside payrolls surprise appears to be increasing," noting that a stronger-than-expected employment report would likely reinforce expectations of further Fed tightening and provide additional support for the USD.
