A Now Hiring sign hangs at a Tire Kingdom store on December 03, 2021 in Miami, Florida.
Joe Raedle | Getty Images
This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.
What you need to know today
Israel declares war on Hamas
Gunmen from Palestinian militant group Hamas attacked Israel on Saturday, killing at least 250 people. Israel formally declared war against Hamas on Sunday and attacked the group in the Gaza Strip. “This is no less than Israel’s 9/11,” said Ian Bremmer, president of Eurasia Group. Oil prices spiked on the news of the invasion. Both Brent and West Texas Intermediate futures jumped around 4%
Blazing hot jobs report
U.S. nonfarm payrolls soared by 336,000 in September. That’s almost two times the Dow Jones consensus estimate of 170,000 and over 100,000 more than the previous month — which was upwardly revised by 40,000. But the unemployment rate held steady at 3.8% against the forecast of 3.7%, while wages grew 0.2% for the month, less than the 0.3% expected.
Markets staged a stunning rebound
Major U.S. indexes had a winning session Friday, reversing midday losses inflicted by the hotter-than-expected jobs report. Treasury yields rose, but likewise pared gains later in the day. The pan-European Stoxx 600 index added 0.82%. Separately, shares of Philips sank 7.2% after the U.S. Food and Drug Administration criticized the Dutch health tech company’s handling of a product recall.
A deliberate bug in FTX
Gary Wang, co-founder and technology chief of FTX, testified against Sam Bankman-Fried in court Thursday and Friday. “When customers deposited USD, it went to Alameda,” Wang said. “It existed in the computer code.” That “bug” in the code was written by Nishad Singh, who was FTX’s director of engineering, and reviewed by Wang. But Bankman-Fried was calling the shots, Wang said.
[PRO] After jobs, inflation numbers
After last week’s blockbuster jobs report, investors will be scrutinizing price readings this week for signs that inflation is abating despite a tight labor market. September’s producer price index comes out Wednesday while the consumer price index is released Thursday. If price increases cool for the month — as economists expect — investors are hoping falling bond prices no longer drag down stocks.
The bottom line
The number of jobs the U.S. economy added in September was so unexpectedly high that markets fell right on cue. But what happened after was a lesson in looking beyond the headline number.
Economists were expecting job creation to slow from 227,000 in August to 170,000 in September. Instead, the shocker of a jobs report said nonfarm payrolls increased by 336,000 last month, the most since January.
Like actors in a play, different parts of the market started to follow a well-rehearsed script. More investors grew convinced the Federal Reserve, forced by the stronger-than-expected labor market, would raise interest rates at its November meeting. The CME FedWatch tool reported a 45% probability of that happening. Stocks slumped: The S&P 500 and Nasdaq Composite retreated 0.9% at their lowest points during the day. Completing the trifecta, U.S. Treasury yields rose, with the 10-year yield hitting a 16-year high at 4.887% earlier Friday.
Yet at the end of the day major indexes returned to the green in a stunning turnaround. The S&P rebounded to add 1.18%, the Nasdaq rallied 1.6% and the Dow Jones Industrial Average gained 0.87%. Treasury yields dipped slightly from session highs.
What prompted the rapid change in sentiment?
After reeling from the shocking headline number, investors had time to digest the details in the report. Wage growth was softer than expected and unemployment held steady. Both statistics, in combination with the massive jobs creation, suggest U.S. consumers remain strong without adding more pressure to inflation. In other words, there’s more evidence the Fed’s successfully steering the economy to a soft landing.
“There is likely enough good news from wage growth and the unemployment rate to keep the Fed from returning to rate hikes,” said Dante DeAntonio, labor economist at Moody’s Analytics.
Indeed, as of Monday morning, investors are betting there’s only a 13.7% chance — a 30 percentage point drop from Friday — the Fed will raise rates in November.
Despite the turbulence last week, the S&P managed to notch a 0.48% gain, breaking a four-week losing streak. The Nasdaq also managed to climb 1.6% for the week. However, the Dow was down 0.3%.
But any optimism October will prove a better month was diminished with Hamas’ attack on Israel. It’s a new headache markets have to deal with, in a year full of exogenous shocks.