October's US non-farm payroll data significantly exceeded market expectations, coupled with upward revisions to the employment data for the previous two months. Following the data release, the US dollar index strengthened, putting downward pressure on gold prices. The core trading logic is as follows: Significantly higher-than-expected job growth, coupled with consistently strong wage data and upward revisions to historical employment figures, led the market to price in a December rate hike by the Federal Reserve, resulting in higher real interest rates, which benefited the dollar and suppressed gold prices. A slight but limited increase in the labor force participation rate, a decline in the unemployment rate, and resilient wages all confirm that the labor market remains hot, and concerns about sticky inflation are unlikely to dissipate quickly.

A summary of key October non-farm payroll data

Non-farm payrolls change: 165,000, previous value 29,000, market expectation 65,000; Average hourly earnings month-on-month change: 0.4%, previous value 0.1%, expected 0.3%; Average hourly earnings year-on-year change: 3.1%, previous value 3.0%, expected 2.9%; Labor force participation rate: 61.9%, previous value 61.8%; Unemployment rate: 4.1%, previous value 4.2%, expected 4.2%. The U.S. Bureau of Labor Statistics simultaneously revised historical data: August non-farm payrolls were revised upwards from an increase of 133,000 to an increase of 186,000, an upward revision of 53,000; September non-farm payrolls were revised upwards from an increase of 29,000 to an increase of 60,000, an upward revision of 31,000. After these revisions, the combined non-farm payrolls for August and September increased by 84,000 compared to previously released data, indicating that the employment fundamentals over the past period have been stronger than the market previously perceived. The unemployment rate fell slightly to 4.1%, still significantly below the 4.7% recession trigger threshold referenced by the SAM rule; this data did not release any recession warning signals. The labor force participation rate rose only slightly, and the release of labor supply was limited. Meanwhile, wages rose both month-on-month and year-on-year, indicating that the labor market supply and demand were tight and that the stickiness of wages pushing up inflation remained.

Data confirms the stable state of employment amidst its unique "three lows" (low employment, low unemployment, and low risk), with a slight increase in interest levels.

Combined with a series of leading indicators from the previous period, the October non-farm payrolls data further confirmed the unique pattern of low hiring, low turnover, and low layoffs in the US job market. Previously, Challenger layoff data showed a significant year-on-year decline in October layoffs, and initial jobless claims fell to a two-month low, indicating that large-scale corporate layoffs did not occur. This time, the significant rebound in new jobs and the decline in the unemployment rate, coupled with upward revisions to August and September employment data, suggest that the job market is more resilient than before. This phenomenon of persistently low population mobility in a non-recessionary environment is quite rare. An aging population and higher levels of education among residents contribute to improved job stability, while factors such as remote working and dual-income families further suppress population mobility. Although overall job-hopping and resignations are not high, the recovery in corporate demand for new employees and the upward trend in the job market suggest that, as long as there is no precipitous deterioration, the Federal Reserve will continue to focus on combating inflation.

The probability of a Fed rate hike in December has increased further.

Previously, Federal Reserve Chairman Williams clearly stated that US inflation was too high and had lasted too long, requiring it to be brought back to the 2% target, while the overall performance of the economy and labor market was robust. This non-farm payrolls report significantly exceeded expectations, with both month-on-month and year-on-year wage growth exceeding expectations. Combined with upward revisions to the employment data for the first two months, this strengthened wage support for inflation. CME FedWatch previously priced in a 69% probability of a December rate hike; after this strong non-farm payrolls report, market expectations for a rate hike have now been revised upwards to 72.8%, further opening the window for a rate hike at the December 8-9 FOMC meeting. However, the fragile structural characteristics of the labor market will also constrain the Fed from initiating a series of aggressive rate hikes. It is worth distinguishing: while rate hikes will marginally suppress investment in AI computing power, the consensus among institutions is that there will not be a general collapse in US computing power capital expenditure. The main factors are project relocation, cost increases, and construction delays due to local regulations, rather than interest rates alone being the dominant factor.

Asset Scenario and Gold Outlook

This data analysis revealed a market movement characterized by "strong non-farm payrolls → rising interest rate hike expectations → stronger dollar and pressure on gold." Going forward, assets will continue to be anchored to two main themes: inflation data and the subsequent development of the employment situation. If next week's CPI inflation reading rises again, coupled with resilient employment, the probability of a December rate hike increases, making it difficult for US Treasury real yields to fall, and gold will continue to face pressure. Conversely, if employment indicators weaken rapidly, even if inflation remains high, the market will trade on expectations of a shift in Fed policy, providing a chance for gold to recover. Overall, short-term interest rate hike expectations are suppressing gold prices, but the inherent fragility of the employment structure and long-term fiscal risks also provide a buffer for gold's bottom. Going forward, attention will be focused on speeches by several Fed officials next week, US CPI data, and the energy impact of Middle East and Russia-Ukraine geopolitical issues.