DBS Group Research economist Eugene Leow reports that investors are assigning a 47% probability to a back-to-back Federal Reserve rate hike at the upcoming October FOMC meeting, indicating that the meeting is being treated as 'live' by market participants [1]. The outcome of this week's nonfarm payrolls (NFP) report, which has a consensus estimate of 90,000, is expected to play a decisive role in shaping these odds [1].
Leow highlights that several labor market indicators, including consistently low jobless claims and lower unemployment rates, are showing improvement compared to six months ago. This trend aligns with the firm Purchasing Managers' Index (PMI) numbers observed in the previous week [1]. According to DBS, US Treasury yields are being pushed higher primarily due to increased expectations of further Fed hikes, as well as a moderate rise in inflation expectations [1].
Additionally, the US Treasury curve has responded to comments from John Williams, President of the New York Federal Reserve, who pushed back against the likelihood of a back-to-back Fed hike [1]. This suggests that market sentiment remains sensitive to both economic data releases and Fed communications.
CONCLUSION
Investors are closely watching labor market data and Fed communications ahead of the October FOMC meeting, with the probability of another rate hike nearly evenly split. The upcoming nonfarm payrolls report is expected to be a key determinant for market expectations and US Treasury yields.