S&P 500 Stages Rally as October Jobs Report Misses Meaningfully

Also 10-year T-Note, Gold, Crude Oil, and British Pound Futures 

1.  S&P 500 E-mini futures (/ES): +0.44% 
2. 10-year T-note futures (/ZN): +0.28% 
3. Gold futures (/GC): +0.79% 
4. Crude oil futures (/CL): +2.6% 
5. British pound futures (/6B): +0.57% 

The U.S. labor market is either humming along or rapidly decelerating, depending upon where you look. The October U.S. jobs report was mixed if not disappointing, with the focus on the headline figure of only 12,000 jobs added last month, well below the 113,000 anticipated. But with labor strikes and hurricanes amounting to significant headwinds—perhaps culling some 100,000 jobs from payrolls—the headline figure is being overlooked.  

Instead, attention is on the unemployment rate (U3), and the lack of significant movement therein. U3 unemployment held steady at 4.1%, while wages surprised and came in up 0.4% month over month (m/m) and 4% year ver year (y/y) vs. the expected 0.3% up m/m and 3.9% y/y. Notably, the Sahm Rule indicator, which suggests a recession has started once the unemployment rate rises by more than 0.5% relative to the minimum of the three-month averages from the previous 12 months, has fallen to 0.43% from 0.5% last report; this means that recession condition has been untriggered. 

The data at the end of October offers a still-optimistic view of the U.S. economy: After a summer slowdown, reacceleration has transpired into the fall. The economy is in a solid position at the macro level, neither booming nor busting. To this end, rates markets are likewise discounting a near 100% chance of a 25-basis-point (bps) rate cut when the Federal Reserve meets next week. 

The S&P 500 futures climbed this morning, adding about 0.5% ahead of the New York open, after a downbeat jobs report bolstered bets that the Federal Reserve would continue to cut interest rates. Amazon (AMZN) gained about 5% in pre-market trading after posting a better-than-expected quarterly profit. Intel (INTC) saw a similar gain ahead of the bell following its own earnings beat.  

The 10-year T-note futures (/ZNZ4) started the month on a positive footing following the biggest monthly decline for the contract since September 2022. Treasury yields fell across the curve as the jobs report added to Fed rate cut bets. The upcoming election and next week’s Federal Open Market Committee (FOMC) meeting now pose the two largest risks to markets. Treasury market volatility increased as the market approaches the November election, reflected by a more than 3% increase in the BofA MOVE index.  

Gold prices (/GCZ4) rose as weaker Treasury yields opened a window for bulls to push prices higher. The metal remains in an uptrend despite earlier profit-taking this week. The fundamental backdrop for the precious metal was strengthened after the jobs report, which should help to support gold exchange-traded fund (ETF) flows, which have seen several back-to-back months of inflows.  

Crude oil futures (/CLZ4) rose farther above the 70 handle after reports crossed the wires suggesting Iran is readying a retaliatory strike against Israel. However, sources cited by Axios say the retaliation will be limited, reducing the chance of a broadening conflict. Meanwhile, traders expect OPEC+ to push back production cut rollbacks, with a decision possibly coming as soon as next week.  

A drop in U.S. yields on the other side of the October U.S. jobs report is helping other major currencies scape back some of their losses vs. the greenback, but not all that significantly. The Japanese Yen (/6JZ4) has been a significant mover since the release of the U.S. jobs figures, quickly losing its gains on the day. But the best performer is the British pound (/6BZ4), which on a technical basis is rallying from the uptrend off the October 2023 and April 2024 lows; alongside a high IVR, /6BZ4 may present the most actionable setup in FX futures heading into next week. 

Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for nearly 20 years. He has consulted with multinational firms on FX hedging and lectured at Duke Law School on FX derivatives. Vecchio searches for high-convexity opportunities at the crossroads of macroeconomics and global politics. He hosts Futures Power Hour Monday-Friday and Let Me Explain on Tuesdays, and co-hosts Overtime, Monday-Thursday. @cvecchiofx
Thomas Westwater, a tastylive financial writer and analyst, has eight years of markets and trading experience. @fxwestwater

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