Today
It’s jobs day in the U.S., and markets are digesting a weaker-than-expected September non-farm payroll report (more details below). The weaker report should ease pressure on the Fed to raise rates, although markets must weigh that against signs the labour market may be losing momentum. Bond yields are lower following the release, while U.S. and Canadian stock futures are pointing higher. Energy markets are also providing some relief this morning. Brent crude is down over -2%, falling below $100 a barrel, while European diesel prices dropped as much as -6% as governments consider releasing strategic fuel reserves. Diesel price have spiked in recent weeks as the Middle East conflict, disruptions from the Russia-Ukraine war and limits on Chinese fuel exports have strained supplies. The EU is considering a French proposal to release 50 mln barrels of diesel, and an additional 50 million barrels of crude from International Energy Agency members, with G7 leaders expected to discuss a coordinated response today.
Job growth in the U.S. slowed in September, with nonfarm payrolls increasing by just 29,000 versus expectations for 90,000, while revisions subtracted another 60,000 jobs from the prior two months. The unemployment rate edged up to 4.2%, although the increase partly reflected a rise in labour-force participation as more people entered the workforce and began looking for jobs, easing some concerns. Wage growth was particularly weak, with average hourly earnings rising just 0.1% for the month and 3.0% YoY, potentially marking a sixth consecutive month in which wage growth trails inflation as higher energy costs continue to pressure household purchasing power. Economists have noted that slower income growth could constrain consumer spending or require households to draw further on savings to maintain consumption. For the Fed, the combination of weak hiring, downward payroll revisions, and softer wages reduces the urgency for additional tightening, with markets scaling back expectations for an October hike.
Re-balancing act. The divergence between bonds and equities over the past quarter is expected to generate significant quarter-end trading by large institutional investors, particularly pension funds that periodically rebalance back to mandated asset-allocation targets. With bonds significantly underperforming equities and stocks still near record highs, some estimates suggest U.S. pension funds alone needed to sell roughly $33 bln of equities around quarter-end and redirect the proceeds into bonds, which would make it one of the largest institutional rebalancing flows since 2000. Those flows could provide some near-term support for fixed-income markets while creating modest selling pressure on equities, with the full impact potentially becoming clearer over the next few days. The adjustment follows the largest quarterly increase in the 10-year Treasury yield since 2009. After a rough quarter for bonds, some managers also see higher yields as a more attractive entry point for fixed income.
Mark Carney is fast-tracking the proposed Pacific Link oil pipeline by designating it a “project of national interest”, giving the federal government power to accelerate approvals with the goal of beginning construction in September 2027. The pipeline would carry as much as one million barrels of Alberta bitumen per day to a new deepwater terminal near Vancouver and expand Canada’s ability to export oil to Asian markets and reduce the energy trade relationship with the U.S. where close to 90% of Alberta’s oil currently goes. The project would be operated through a new company jointly owned by the federal and Alberta governments, with Pembina Pipeline initially holding 10% and at least another 10% being offered to Indigenous groups, while government-owned Trans Mountain would lead development. Alberta estimates construction could cost between $35 bln and $44 bln. While some are praising the plans, analysts expect that the project could face environmental, Indigenous, and legal challenges as well as concerns about increased tanker traffic.
Rising Treasury yields are creating weakness beneath the surface of the U.S. equity market even as the S&P 500 remains less than 2% below its record high, which has been largely supported by megacap tech and the AI trade. With the 10-year Treasury yield reaching 5.34% (intraday), its highest level since 2002, rate-sensitive areas have been hit hard, with the Russell 2000 now -8.5% below its August peak and just posting its second-worst quarterly performance vs. the S&P 500 since 1999. Utilities have also suffered, declining -17% from their February peak as higher bond yields make their dividends less attractive and rising financing and fuel costs pressure profitability. Speculative equities are showing under stress, with Goldman Sachs’ basket of unprofitable technology companies falling -11% during the third quarter. Market breadth has deteriorated sharply, with the equal-weighted S&P 500 heading toward a seventh consecutive weekly decline even as the cap-weighted index remains near record levels.
Japan added another wrinkle to the global rates story as inflation in Tokyo picked up in September, strengthening the case for further BOJ rate increases. Japan’s core CPI rose 2.7% y/y, above the 2.4% estimates and August’s 1.8% increase, while inflation excluding fresh food and fuel jumped to 3.0%, its fastest pace since August 2025. Services inflation picked up to 2.3% from 1.4%, suggesting businesses are beginning to pass higher labour costs onto consumers, while the weak yen, higher raw-material costs and the Middle East energy shock are adding to price pressures. The prospect of further BOJ tightening matters beyond Japan, with higher Japanese yields potentially adding to the pressure already facing global bond markets. In contrast, South Korea’s headline inflation eased to 2.9% from 3.1% as government caps on domestic petroleum prices and lower food prices helped contain inflation, although higher energy and transportation costs continue to create underlying inflation pressure.
No insider trading or market manipulation, just a lot of unpaid train tickets. A former HSBC Asset Management executive has been banned from working in UK financial services after being convicted of fraud for dodging almost £6,000 in train fares. Joseph Molloy, former head of passive equity at HSBC Asset Management, used what the British call a “doughnutting” scheme on his commute from south London to Canary Wharf. The strategy involved buying valid tickets covering short portions at the beginning and end of his trip, while paying nothing for the much larger stretch in between. He used fake names and addresses to get the transit cards and avoided fares at least 740 times, while also obtaining a 50% discount meant for unemployed job seekers. Molloy pleaded guilty to fraud earlier this year and received a suspended 10-month prison sentence, along with compensation, community service and a one-year ban from the rail operator. The UK’s Financial Conduct Authority also imposed a lifetime ban from regulated financial services, saying the conduct demonstrated a lack of honesty and integrity. Safe to assume transportation wasn’t included in the former banker’s comp package.
Diversion:
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