U.S. October rate hike expectations have been virtually eliminated; the dollar tide is turning—A-shares await the wind.

【Answer 1】 Nonfarm payroll growth in September was only 29,000 jobs. The market had expected 90,000—a figure less than one-third of forecasts. Even more jarring: employment figures for the prior two months were sharply revised downward—August’s number was cut from 162,000 to 133,000, and July’s was revised from a gain of 21,000 to a loss of 10,000. Across those two months, 60,000 jobs vanished from the official tally. The unemployment rate rose from 4.1% to 4.2%. How “cold” is this data? To keep pace with labor-force growth, the U.S. economy needs to generate roughly 70,000–100,000 new jobs each month. At just 29,000, this figure fails even to meet the threshold required to maintain labor-market stability. Markets reacted instantly with price action. CME Group’s FedWatch tool showed traders’ probability estimate for a Federal Reserve rate hike in October plummeting from 22% before the data release to 17% afterward; cumulative rate-hike expectations for the remaining two meetings this year fell to about 21 basis points. In other words, markets have all but abandoned bets on an October hike. The Dow Jones Industrial Average surged over 400 points intraday; the Nasdaq Composite rose as much as 2%, hitting an all-time high of 27,353.68. NVIDIA’s stock climbed to $237.88 intraday, briefly pushing its market capitalization to $5.7 trillion. The Philadelphia Semiconductor Index jumped 2.4%. This report was truly a “three-birds-with-one-stone” event. First, it knocked out October rate-hike expectations; Second, it dispelled fears that the Fed would continue tightening; Third, it opened a window for global risk assets. Is the dollar tide turning? To grasp what this means for A-shares, we must first understand a broader framework—the “dollar tide.” For over two decades, global capital markets have breathed in rhythm with the U.S. dollar cycle. When the Fed cuts rates, dollars flow into emerging markets, lifting asset prices; When the Fed hikes, dollars flow back to the U.S., subjecting emerging markets to capital outflows, currency depreciation, and debt stress—a triple blow. This ebb and flow operates with tidal regularity. This hiking cycle began in 2023 and concluded in September 2026, when the Fed delivered a final 25-basis-point hike, raising the federal funds rate to 3.75%–4.00%. During this period, the 10-year Treasury yield briefly breached 5.34%, while the 30-year yield surpassed 5.5%—both highs not seen since 2007. The U.S. Dollar Index also climbed to a high of 101. The combination of high interest rates and high debt placed immense pressure on emerging markets. Now, however, the nonfarm payroll data has cast a question mark over this cycle. Goldman Sachs previously projected that the Fed would complete its final hike in October and end this tightening cycle, with rate cuts not arriving until late 2027. Citigroup took a more aggressive stance, arguing that the Fed had already hiked in September and would likely pause thereafter until mid-next year. Regardless of which view proves correct, market consensus holds that: There is very little room left for further hikes. Once rate-hike expectations cool, the direction of the dollar tide begins to shift. U.S. Treasury yields fall, the dollar weakens, and capital gains renewed momentum to flow from the U.S. into emerging markets. For RMB-denominated assets, this implies easing pressure from foreign capital outflows—and possibly even a return to net inflows. A “triple tailwind” is now brewing for A-shares.

September’s weak U.S. nonfarm payrolls may be illusory; year-end Fed rate-hike expectations remain intact!

【Answer 2】 More notably, employment figures for the prior two months were also significantly revised downward: July’s reading was adjusted from a gain of 21,000 to a loss of 10,000, and August’s was revised from a gain of 162,000 to 133,000—reducing the total by 60,000 jobs versus earlier reports. In other words, the U.S. labor market has indeed cooled over recent months—not merely in September alone. By sector, September’s job growth came primarily from healthcare, construction, and manufacturing: healthcare added roughly 17,000 jobs; construction, about 11,000; and manufacturing, around 9,000. Government employment fell by 17,000; information-sector jobs declined by 10,000; and financial activities shed 7,000 positions. On the surface, this is clearly a weak nonfarm report. Yet herein lies the crux—the weak headline does not necessarily signal a clear deterioration in the U.S. labor market. Because if U.S. firms were truly cutting jobs en masse, unemployment would typically rise more sharply; yet September’s unemployment rate rose by only 0.1 percentage point. More importantly, another survey paints a markedly different picture. Thus, whether this nonfarm report reflects genuine softness—or instead reveals a pronounced divergence between statistical methodologies—bears close watching. II. Following the nonfarm release, U.S. Treasury yields and the dollar index retreated, while U.S. equities rallied amid falling odds of a Fed October hike. Immediately after the nonfarm data release, financial markets responded directly: Weak employment → reduced pressure on the Fed to hike. Following the sharp miss in September’s nonfarm payrolls, markets swiftly scaled back bets on a Fed rate hike at its October 27–28 meeting. The dollar weakened temporarily, while U.S. equities gained support. U.S. Treasury yields fell accordingly: the 10-year yield dropped roughly 3–6 basis points, settling near 5.18%–5.20%; the policy-sensitive 2-year yield fell even more sharply—by 8–10 basis points. Markets interpreted the cooling labor data as reducing near-term rate-hike pressure, thereby boosting bond prices and lowering yields. The U.S. Dollar Index likewise softened, declining about 0.1%–0.2% to 101.8–101.9. This dollar weakness directly reflected fading rate-expectation optimism and diminished relative appeal of U.S. Treasuries. Meanwhile, U.S. equities gained traction and rose. Major index futures and spot markets opened higher; the S&P 500 and Nasdaq posted modest gains, with some sessions rising more than 0.5%–1%. Investors viewed the slowdown in hiring as lowering the risk of rapid policy tightening—supportive for risk-asset valuations. CME Group’s FedWatch tool showed a dramatic pivot in market expectations for the Fed’s October 27–28 meeting. One week before the report, the probability of a hike had stood near 70%; by the time of the report’s release, it had already fallen to the 20%–30% range. After the data, the odds of a 25-basis-point hike dropped further—to roughly 14%–22%—while the probability of holding rates steady within the current 3.75%–4.00% range rose to about 78%–86%. Still, markets continue pricing in a potential December hike—though an October move has been effectively ruled out. Overall, the soft nonfarm data has reinforced the narrative of “slowing employment, with inflation still needing monitoring,” temporarily dampening the urgency for further hikes, driving yields lower, weakening the dollar, lifting equities, and dramatically reducing October-hike odds.

Stocks Upbeat, Dollar Wobbles as Fed Hike Bets Recede

1 day ago

Global stocks rose and the dollar weakened as investors trimmed expectations for Federal Reserve rate hikes, while oil prices remained elevated due to Houthi attacks on Saudi Aramco sites.

reuters

2026-07-06

Oil Holds Drop as Saudi Arabian Price Cut Amplifies Glut Concerns

2026-07-07

Saudi Arabia Cuts August Crude Oil Prices Significantly, International Oil Prices Face Downward Pressure

2026-07-28

Militias in Iraq Attack Saudi Oil Facilities for a Second Day

2026-07-29

Oil Prices Surge Over $3 per Barrel Amid Renewed Middle East Hostilities

2026-08-06

Saudis Cut Main Oil Price to Asia Amid Talk of Hormuz Deal