Equities experienced a significant surge on Monday following the release of US non-farm payrolls data, which revealed that the world's top economy created only 29,000 jobs in September, falling short of forecasts for around 90,000. This unexpected miss gave the Federal Reserve room to potentially hold off on an interest rate hike this month. Meanwhile, oil prices eased, with Brent crude remaining above $100 a barrel after easing off from recent four-month highs.
The South African rand, however, has come under renewed pressure over the past two weeks, falling from below R16/$ to around R16.70 to the US dollar late last week, its weakest level since July. On Monday morning, the local currency was trading at R16.71 to the US dollar, R18.67 to the euro, and R22.06 to the British pound. According to Reuters, the currency was heading for its fourth consecutive weekly decline.
Investec chief economist Annabel Bishop attributed the rand's decline to the Middle East conflict, higher oil prices, and safe-haven flows into the dollar. She noted that the rand has weakened much less against the euro and pound, suggesting the latest move is partly about dollar strength rather than a sharp deterioration in South Africa's fundamentals.
Global stocks rallied as investors in Asia followed the positive lead from their colleagues on Wall Street. The report showed that the readings for the previous two months were also revised down, with July's showing posts were actually lost. Markets immediately repriced the likelihood of a Fed rate hike, with CME's FedWatch tool seeing just over a 20 percent chance, compared with more than 65 percent early last week.
The spike in government borrowing costs has been driven by stubbornly high inflation, government spending, and an increase in companies borrowing to pay for their AI investments. Stephen Innes at SPI Asset Management wrote that the recent hiring trend has settled into a "not-too-hot, not-too-cold Goldilocks porridge zone of roughly 40,000 to 60,000 jobs a month." He added that core PCE is still uncomfortable at three percent year over year, but the shorter-term pulse has cooled noticeably.
G7 leaders' decision to release 100 million barrels of diesel and crude oil from their reserves over four months also helped to boost market sentiment. The move followed pressure from President Donald Trump to tap the European Union's strategic diesel reserves or face a US ban on diesel exports. Additionally, Saudi Arabia slashed the price of its benchmark grade to Asia to $5 below the regional benchmark.
Key points
- US job creation misses forecasts, easing inflation concerns and potentially delaying a Fed rate hike.
- South African rand tumbles to its weakest level since July due to dollar strength and global economic factors.
- Global stocks rally as investors react to US job data and easing oil prices.
