Markets
Friday’s US payrolls and ISM missed expectations and reinforced last week’s correction. The US economy in October ‘only’ added 150k jobs vs 180k expected (101k downward revision for August & September). There was some negative impact of the UAW strike. Wage growth was modest (0.2% M/M, 4.1% Y/Y rom 4.3%) and the consumer survey weak with a higher unemployment rate (3.9% from 3.8%) and a lower participation rate (62.7%). The services ISM missed the bar, easing from 53.4 to 51.8 (53 expected), but details were mixed (solid orders, soft employment, stubbornly high prices). However, the market context didn’t allow for nuances. Data indeed give the Fed good reason to feel comfortable with its non‐committal ‘wait‐and‐see’ approach. Markets are going a step further, concluding the Fed is almost certainly done and focusing on the timing of a first rate cut. Contrary to earlier last week, the short end of the US yield curve outperformed. The US 2‐y yield tumbled 15.1 bps. The 30‐y only ceded 3.4 bps. A June rate cut is now fully discounted. Dovish Fed Bostic, in a Bloomberg interview, rubberstamped reigning sentiment as he expects inflation to return to target in the next 8 to 10 months. He didn’t want to speak out on any specific timing of rate cuts, but repeated they will take place before hitting the target. EMU/German yields joined the decline in the US, but with a bull flattening (2‐y ‐4.8 bps, 30‐y ‐8.5 bps). ECB’s Lagarde kept a more balanced approach. She confirmed expectations for inflation to slow and return to 2% in 2025, but indicated that the central bank won’t give in to political pressure that higher yields might slow growth too much. Equity markets clearly saw softer data and potential Fed rate cuts as some kind of goldilocks scenario. US indices added up to 1.38% (Nasdaq). The dollar was hit by the risk‐on. DXY tumbled from the 106 area to close near 105.05. EUR/USD (close 1.073) finished above the 1.0694 end October top, improving the technical picture.
Asian equities join the risk rally on WS this morning (Nikkei +2.4%). Later today (and further out this week) the eco calendar is rather thin. Plenty of ECB and Fed speeches are a wildcard (e.g. Lagarde and Powell on Thursday). After last week’s bond/equity rally and USD correction, markets might look for a new short‐term equilibrium. Several key technical levels are under severe strain. For the US 10‐y yield we look out whether the 4.5% area holds. The German 10‐y yield dropped below the 2.68% neckline, with the 2.56/60% area a next reference. For EUR/USD, 1.0764 (38% retracement July top/Oct low) is a key resistance. For bonds as well as for the USD correction, maybe the easy part of the move might be behind us.
News and views
The South Korean Financial Services Commission announced a ban on short selling until June 2024. The rule applies to companies’ shares trading in the Kospi 200 and Kosdaq 150 indices. The FCS chairman warned that illegal short‐ selling undermines fair price formation and hurts market confidence. Therefore, the regulator will actively improve rules and systems. Several global banks which account for most of the short‐selling activity will also face an inquiry. The investigation comes ahead of general election in April against a background of retail investor protests, but hampers efforts to get an upgrade from emerging to developed market in global stock indices. The Kospi and Kosdaq indices rally by 4.5% and 7.1% respectively this morning. A stronger Korean won takes over from a weak US dollar in pulling USD/KRW lower this morning. The pair fell from levels above 1350 at the beginning of last week to below 1300 currently, the strongest KRW‐rate since early August.
