Market movers today
Today will be a quiet day on the data front with no market movers except some tier-2 data points from the Sentix investor confidence indicator in the euro area and service PMIs in Italy and Spain.
The entire week is also thin on data releases with no market movers in the euro area and only tier-2 data in the US. Focus will be on Fed commentaries after last week’s meeting and the University of Michigan survey on Friday. From China, we receive CPI figures on Thursday while Tuesday brings wage data from Japan. On Friday, UK GDP figures are due. The Reserve Bank of Australia meeting on Tuesday will be interesting as markets are pricing a 55% probability of a hike.
The 60 second overview
US: The October Jobs Report fell short of expectations, as non-farm payrolls grew by only 150k (consensus +180k, September revised down to 297k). While the UAW’s strike might have affected the figures negatively (with manufacturing employment dropping by 35k), overall the report illustrated cooling labour markets. The household survey showed a 346k decline in the number of employed workers, which lifted the unemployment rate to 3.9% (from 3.8%). With slack slowly building into the labour market, average hourly earnings growth remained modest at only 0.2% m/m SA. The Fed’s Barkin, Kashkari and Bostic all welcomed signs of better balanced labour markets after the release, and UST yields edged lower on the day. We still foresee further downside potential in long-end yields towards 2024 and expect US economic momentum to fade going forward, read our reflections on last week’s events and long-term view from Research US – Bond yields headed lower towards 2024, 3 November.
Israel-Hamas war: International pressure for finding a ceasefire solution in the war between Israel and Hamas appears to be rising as civilian casualties mount. US Secretary of State Blinken visited the West Bank on Sunday to discuss with Palestinian Authority President Abbas as well as foreign ministers from Qatar, Saudi Arabia, Egypt, Jordan and UAE, and will meet with Turkey’s foreign minister later today (see Reuters). US and Israeli defence ministers discussed the issue yesterday, and US Vice President Harris will lead a call discussing humanitarian aid to Gaza today. That said, a near-term solution appears elusive, as Netanyahu continued to emphasize that ‘there will be no ceasefire without the return of the hostages’. There were also strikes at both sides of the border against southern Lebanon over the weekend, as tensions between Israel and Hezbollah continue to build. That said, Hezbollah leader Nasrallah did not announce the terrorist organization fully joining the war in his speech on Friday.
Equities: Equities rallied again on Friday as cooling job data soothed inflation- and yields fear. S&P 500 jumped another 0.9% and small cap Russell 2000 a full 2.7%. This takes the latter a full 8% higher for the week and S&P 500 +6%. This is the strongest US weekly gain in a year. Europe and Nordics a tad weaker though, up 3% for the week, so expect catch-up during the day. Outperformers were the same as during the week. Real estate up 9% for the week, banks +7% (and especially regional banks +12%), and consumer discretionary +7%. Financing candidates were found in defensive sectors, such as energy or consumer staples.
FI: 10Y US Treasury yields bounced back a bit after the initial rally on the back of the US labour market data and closed at 4.58% after having dipped below 4.5% on Friday. However, as the Federal Reserve is done hiking for now, 5% seems to be the top for 10Y Treasury yields and we should expect that the steepening of the yield curve should continue, but more from the short-end rather than the bearish steepening we have seen so far. Hence, the significant rise in the term premium on the 10Y US treasury yield we have seen so far should also decline.
FX: Bad news was good news for market sentiment on Friday and bad news for the USD. The weak jobs report sent EUR/USD above 1.07 and USD/JPY below 150. It also weighed on EUR/SEK and EUR/DKK, while EUR/NOK was largely unaffected.
Credit: Credit markets had yet another day of solid performance with iTraxx Xover tightening 6bp and Main almost 2bp, thus bringing both indices to their tightest since mid-September.
