Payrolls Beat Expectations, But Rising Unemployment Signals Softening Labour Market

• US payrolls delivered an upside surprise, rising 119,000 in September, the strongest monthly gain in five months. The lift in participation pushed the unemployment rate higher to 4.4%, signalling a softening labour market.
• Global bond markets rallied as US Treasury yields pushed lower, with the 2-year sliding to 3.53% and the 10-year to 4.09%, as traders weighed shifting expectations around the Fed’s next move.
• Rate cut pricing firmed modestly, US markets now assign a 35% probability of a December Fed cut, even as expectations remain for three further reductions across the easing cycle.
• In Australia 3 year government bond yields fell from 3.80% to 3.78%, while the 10yr yield fell from 4.49% to 4.47%. Markets are now pricing no chance of a rate cut come December meeting.
• The RBA board assumes one more rate cut in 2026, with underlying inflation expected to rise above 3% in the near term before moderating to around 2.6% by 2027.