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Payroll & Europe’s impact on US assets

Published on October 2, 2026

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Dennis DeBusschere

Kevin Brocks

Sophia Wang

DAILY STRATEGY: An inline payroll reading (4.1% urate, 90k headline reading) should be bullish bonds – 10yr yields lower – and support a bounce in some oversold yield sensitive assets (small caps, retail, transports). Fed governors have pushed back against market pricing for rate hikes. Fed governors are consistently signaling 2-3 TOTAL hikes (we already had one), not the 4-5 that investors have priced.

Per our per payroll investor survey (HERE), only 6% of respondents think the reaction to the payroll report will be risk-off. That makes sense given the investors also believe the unemployment rate will move up from 4.1 to 4.2%. Contrarians put your hawkish hedges on!

Investors also expect…

Payrolls at 90k (BBG consensus 90k)
AHE in-line at 0.3%
Urate higher at 4.2%, BBG consensus 4.1%

If the above happens it would be BULLISH for stocks all things equal. An unemployment rate increase would reinforce that a mild tightening from the Fed is needed in a strong payroll growth backdrop and solid average hourly earnings growth.

As far as when growth is too hot or not.

80-120k Payrolls and/or 4.1% urate is viewed as risk-on
>120k Payrolls and/or 4% urate is risk-off

On a separate topic, European risk assets have been under pressure recently and that intensified yesterday. Some EM currencies have the same issue. The Euro, the Mexican peso, European bank stocks as examples have traded poorly of late but accelerated lower yesterday. The increase in Energy prices and rates does impact the rest of world MUCH more than the US. Gerard has covered this many times before (HERE). The demand shock from higher energy prices will be born much more by the rest of world. Sovereign debt risk in France (HERE) is an additional headwind for European assets. In short, the USD has tailwinds as US economic growth trends diverge further from European and many EM countries. Also, an increasing 10yr yields has generally been a dollar support.

Chart…

The aggressive move wider in French 10yr yields vs German 10yr yields likely helps support a move to US bonds.

USD has an upward bias given the move in 10yr UST yields.

53% of investors believe that Friday’s data will be mixed/negligible. 41% believe risk-on and only 6% risk-off. That is the lowest share of risk-off since December 2025, and the second lowest in the history of our surveys (2021-fwd).

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