Once the market believes all central banks are on hold, bond yields move lower.
In the first days of November 2023, global financial markets staged their strongest weekly rally in a year, as the Federal Reserve and Bank of England chose stillness over action — holding interest rates steady and signaling, perhaps, that the long season of monetary tightening had finally run its course. Investors, long braced against the headwind of rising rates, began to turn and face the possibility of cuts ahead, sending bond yields tumbling and stock indices climbing across continents. Yet the week's story was not yet complete: a single employment report, due Friday morning in Washington, carried the weight of confirming or complicating everything the markets had chosen to believe.
- Global stocks surged 4.3% in a week — their best performance in a year — as two of the world's most powerful central banks declined to raise rates further, igniting a broad repricing of risk.
- Bond markets moved with unusual force: the 10-year U.S. Treasury yield shed 36 basis points from a 16-year peak above 5%, a shift that ripples through mortgage rates, corporate borrowing, and the relative appeal of every asset class on earth.
- The dollar softened, oil retreated, and European indices tracked toward multi-month highs — a coordinated exhale across markets that had spent more than a year tensed against tightening.
- Apple's disappointing holiday-quarter forecast and a muted open for S&P 500 futures introduced a note of caution, reminding investors that corporate earnings still have to answer for the economy's condition.
- Everything now rests on the U.S. nonfarm payrolls report: economists expect 180,000 jobs added in October, a figure that — if it holds — would suggest the economy is cooling just enough to keep the Fed on the sidelines.
By Friday morning, global equity markets were on the verge of their best week in a year. The MSCI World index had climbed 4.3% since Monday — a gain not seen since November 2022 — propelled by a decisive shift in how investors read the intentions of the world's major central banks. The Federal Reserve held rates steady on Wednesday; the Bank of England followed on Thursday. Together, those decisions planted a conviction in markets: the era of rate hikes was ending, and cuts were the next chapter.
The rally was broad and, in its Friday expression, almost quiet — as though markets were pausing before the afternoon's defining moment. Europe's Stoxx 600 was heading for a 3.4% weekly gain, its largest since March. Germany's DAX and Britain's FTSE 100 edged higher. The real drama had already played out in bond markets, where the 10-year U.S. Treasury yield fell 36 basis points from a 16-year peak above 5%, settling near 4.67%. Lower yields ease borrowing costs for everyone from homeowners to corporations, and make equities more attractive by comparison. JPMorgan Private Bank's Samuel Zief noted that once investors accepted the major central banks were truly on hold, yields would likely keep falling — a view reinforced by the European Central Bank's own pause the week prior.
The dollar weakened alongside U.S. yields, slipping 0.49% for the week while the euro gained ground. Oil fell nearly 4%, partly because the Israel-Hamas conflict had not widened into the broader regional war some had feared.
Still, the week's meaning depended on one more number. The U.S. nonfarm payrolls report — expected to show 180,000 jobs added in October, down sharply from September's 336,000 — would either validate the market's cooling narrative or force a reckoning. Goldman Sachs anticipated a slightly stronger 195,000, with some holiday front-loading offset by autoworker strike effects. A number that ran too hot could revive fears that inflation remained stubborn and the Fed's pause was temporary.
Apple offered a cautionary counterpoint Friday morning, missing holiday-quarter sales expectations and sending its shares down roughly 3% in pre-market trading. S&P 500 futures pointed to a modest pullback. Elsewhere, the conviction of FTX founder Sam Bankman-Fried on fraud charges passed without disturbing markets; Bitcoin held near $34,000. The week had been built on a single, powerful belief — that the tightening cycle was over. The payrolls report would decide whether that belief was earned.
By Friday morning, the global stock market was on the verge of its best week in a year. The MSCI World index had climbed 4.3% since Monday—a surge not seen since November 2022—and the momentum was being driven by a simple but powerful shift in expectations about interest rates. The Federal Reserve had held rates steady on Wednesday, the Bank of England followed suit on Thursday, and investors were beginning to believe that the era of rate hikes was over. What came next, many thought, was rate cuts.
The rally rippled across continents. Europe's Stoxx 600 index was tracking toward a 3.4% weekly gain, its largest since March. Germany's DAX and Britain's FTSE 100 both edged higher on the day. The movement was orderly, almost quiet—trading on Friday itself was subdued, as if the market was catching its breath before the afternoon's big economic announcement. The real action had already happened in the bond markets, where yields had tumbled in response to the central banks' signal that they were done tightening credit.
The 10-year U.S. Treasury yield, which serves as a benchmark for borrowing costs worldwide, had fallen 36 basis points from its 16-year peak above 5 percent just days earlier. It now sat at 4.666 percent. That decline mattered everywhere—lower yields make stocks more attractive relative to bonds, and they ease the burden on borrowers from corporations to homeowners. Samuel Zief, head of global foreign exchange strategy at JPMorgan Private Bank, captured the shift plainly: once investors became convinced that all the major central banks were truly on hold, bond yields would continue moving lower. The European Central Bank had already held rates the week before. The message was consistent across the world's largest economies.
The dollar, which had strengthened as the Fed raised rates, began to weaken. The dollar index fell 0.49 percent for the week, dragged down by the decline in U.S. yields. The euro gained 0.69 percent against the dollar. Oil prices, meanwhile, had fallen 3.8 percent since Monday, settling at $87.04 a barrel for Brent crude, partly because the Israel-Hamas conflict had not escalated into a broader regional war as some investors had feared.
But the week's narrative still hinged on one more piece of data: the U.S. nonfarm payrolls report, due at 8:30 a.m. Eastern time on Friday. Economists expected the economy to have added 180,000 jobs in October, a significant slowdown from September's blockbuster 336,000. Goldman Sachs' chief economist Jan Hatzius predicted a slightly stronger figure of 195,000, accounting for some front-loaded hiring before the holidays, though he acknowledged a 30,000-job drag from the ongoing autoworker strikes. The number would either confirm that the economy was finally cooling—validating the market's bet on rate cuts—or suggest that inflation pressures remained and the Fed might need to keep rates higher for longer.
Apple delivered a cautionary note on Friday morning, missing Wall Street's expectations for holiday-quarter sales. Its Frankfurt-listed shares fell 2.3 percent, and the stock was down around 3 percent in pre-market U.S. trading. S&P 500 futures pointed to a slight decline at the open, a modest pullback after Thursday's 1.9 percent jump. Elsewhere, Sam Bankman-Fried, the founder of the collapsed cryptocurrency exchange FTX, was found guilty on Thursday of stealing from customers, but the verdict produced no obvious market reaction. Bitcoin held its recent gains at $34,269.
The week had been built on a single conviction: that central banks had finished raising rates and the next move would be down. Everything from bond yields to currency markets to stock valuations had shifted in response to that belief. Whether the payrolls data would cement that conviction or shake it remained to be seen.
Notable Quotes
Once the market can become convinced that all these central banks are on hold, that can encourage bond yields to move lower.— Samuel Zief, head of global FX strategy at JPMorgan Private Bank
We believe tight labor markets incentivize firms to frontload autumn and pre-holiday hiring.— Jan Hatzius, chief economist at Goldman Sachs
The Hearth Conversation Another angle on the story
Why does it matter that central banks paused rate hikes? Isn't that just them staying still?
Because staying still is a signal. For months they've been raising rates to fight inflation. When they stop, the market reads it as "we think we've done enough." That changes everything about how investors price stocks and bonds.
And the bond market moved first?
Yes. Bond traders are sensitive to the smallest shifts in what central banks might do next. When yields fall, stocks become more attractive—you get better returns from stocks than from bonds. That's what pulled money into equities this week.
The dollar weakened. Is that connected?
Directly. Higher U.S. yields attract foreign money seeking better returns, which strengthens the dollar. Lower yields do the opposite. The dollar weakens, which makes American exports cheaper and foreign goods more expensive here.
What's the risk in this rally? What could break it?
The payrolls number. If the economy is still adding jobs at a strong pace, it suggests inflation isn't cooling as much as the market hopes. That could mean the Fed isn't actually done raising rates. The whole rally is built on that assumption.
So one jobs report could undo a week of gains?
Not undo it entirely, but it could pause it. Markets move on expectations. If expectations change, so does the price of everything.