The US labour market smashed forecasts in September – with job growth almost doubling market estimates – suggesting that the Federal Reserve’s monetary tightening efforts have farther to go in slowing the economy.

According to data released by the Bureau of Labor Statistics this morning, 336,000 jobs were added, and the unemployment rate held at 3.8 percent, remaining near historic lows. Average hourly earnings rose 4.2 percent year-over-year, broadly in line with expectations. Ahead of the release, economists had forecast a 160,000-job gain (although markets likely expected more) and the unemployment rate was seen holding at 3.8 percent.

The dollar is soaring, equity futures are plunging, and yields are surging higher as traders raise the odds on an additional rate hike this year and lower expectations for cuts in 2024. The two-year Treasury is yielding 5.13 percent as we go to pixels, and the ten-year is at 4.82 percent.

On the face of it, the print should help bolster the Fed’s “higher for longer” stance, but financial conditions and sentiment have deteriorated since today’s underlying data was collected – we expect business investment and consumer consumption to soften materially in coming months, leading to a sharp reduction in labour demand. This, combined with a more generalized weakening in economic surprise indices, could puncture today’s spectacular rally in the dollar and deliver some relief to global currency markets.

North of the border, Canada added 63,800 jobs in September, up from the 39,900-job gain reported in the prior month and almost three times higher than consensus forecasts as the labour market continued to defy expectations for a more profound cooldown. 15,800 full-time roles were created, adding a gain of 47,900 part-time positions. The unemployment rate held at 5.5 percent. Economists had expected a circa-20,000-job gain, with unemployment rising to 5.6 percent. Average hourly wages rose 5.3 percent on a year-over-year basis, following an increase of 5.2 percent in August.

The Canadian dollar is down modestly, but is outperforming its global counterparts in the face of an astonishing gain in US payrolls.