Softer US Payrolls and a Crucial Election in Brazil

Key arguments

• September payrolls of 29k were far below the 90k consensus, but the unemployment rate at 4.2% and rising participation suggest full employment persists.
• The labor market is stable and not adding to inflationary impulses; wage growth of only 13bps m/m is below even the tepid gains of the past year.
• The softer jobs picture and lower wages reduce the urgency for a Fed hike in October, and perhaps December if inflation data cooperate, though inflation remains the higher concern.
• Natixis cautiously recommends scaling into 2-year yields, with 3m5y 1x2 receivers and owning 10s on 5s10s30s swaps given an expected modest rally.

Corresponding source evidence

1. As we expect any rally tobe relatively modest, we also recommend 3m5y 1x2 receivers (ATM-25/ATM-50) and owning 10s on 5s10s30s inswaps.
2. Wage growth was even lower than the typically tepid gains inthe last year, rising only 13bps m/m.
3. We continue to think the labor market isabit shakier than the headline numbers suggest, but this data isunlikely to shift the broader decision-making calculus for the Fed as inflation remains the higher concern, but with wages lower and the jobs picture abit less rosy, itcertainly decreases the urgency to hike inOctober (and perhaps December, ifinflation data cooperates).