Markets:
Today’s US payrolls had to decide whether markets recently discounted enough tightening. Markets took a ‘mild’, indecisive bias going into the release with Treasuries tentatively in the defensive while major European equities added modest gains. The dollar ceded few ticks. This week’s ADP at least again wasn’t a good pointer. The US economy in September added 336k jobs! In addition, data for the previous two months were upwardly revised by 119k. The goods producing sectors added 29K jobs. Services sector employment grew 234k with health services adding 66k and leisure and hospitality up 96K. The government sector also hired a net 73k of new employees. Other data subseries were less spectacular. Average hourly earnings printed at a modest 0.2% M/M (was 0.3% in August) and 4.2% Y/Y, marginally lower than expected. The unemployment rate, derived from another statistical basis (Hhousehold survey) stabilized at 3.8%. According to this series both employment (86k) and the labour force (90k) grew modestly and far less than in previous month. Despite this ‘statical noise’, after a brief hesitation, bonds couldn’t but resume the sell-off. No smooth sailing going into the Columbus Day long weekend. In volatile trading, US yields currently add between 8 bps (-2-y) and 13 bps (10-y). Yields across the US curve neared (< 7-y) or touched (>10-y) new cycle peak levels (30-y +5%, 10-y touched 4.88%), but it’s unsure whether these peak levels will hold into the close. Markets raised the chance of an additional Fed rate hike later this year to 50%. This is still rather modest given recent Fed talk mostly supporting the 25 bps additional step guided in the dots. Maybe investors ponder whether soft wage growth still gives the Fed some room to wait-and see. Anyway, the countdown to next Thursday’s US September CPI has started. German Bunds feel some collateral damage with yields in a steepening move rising between 1.5 bps (2-y) and 5 bps (30-y). European equity markets briefly reversed earlier gains upon the release, but the EuroStoxx 50 currently again trades about 0.5% in green. US indices are ceding about 0.6% (S&P 500 & Nasdaq) after the open. Here as well, the damage could have been bigger. Oil stabilized near $84/b.
Higher (real) yields evidently favour the dollar. However, gains for now aren’t excessive. Recent peak levels in the likes of the DXY (106.67 VS 107.34 top on Wednesday) still are some distance away. EUR/USD dropped from 1.0560 to currently test the 1.05 barrier. USD/JPY is changing hands near 149.5. So, the BoJ again should be on alert if it wants to defend the 150 barrier. Sterling (EUR/GBP) is hardly affected by the broader move with the pair holding tight near the 0.855 pivot.
News & Views:
Canadian September payrolls beat consensus as well. The economy added 63.8k jobs (vs 20k) expected) with details showing both increases in part time (47.9k) and full time (15.8k) occupations. The upward trend in employment continues to occur in the context of the highest population growth since 1957. The employment rate—the proportion of the population aged 15 years and older who are employed— rose 0.1 percentage points to 62.0%. The unemployment rate stabilized at 5.5% even as the participation rate ticked up from 65.5% to 65.6%. The hourly wage rate for permanent employees unexpectedly accelerated from 5.2% Y/Y to 5.3% Y/Y. The Canadian loonie manages to set its foot against a strong dollar with USD/CAD even dipping back below 1.37. Canadian swap rates rise by 6 to 7 bps across the curve with the market implied probability of another rate hike by the Bank of Canada before year-end rising from 50% to 75%.
Czech August retail sales disappointing falling by 0.8% M/M and 2.8% Y/Y (from -2.1% Y/Y in July). Real consumption of (cheaper) food is gradually picking up while consumers remain cautious on spending at big ticket items. We downwardly revise our Q3 GDP forecast to -0.1% Q/Q with 2023 and 2024 projections now at -0.3% (from -0.1%) and 2.4% (from 2.6%). The Czech National Bank today also published Minutes of the September policy meeting which showed that at least 3 policymakers (out of 7) believe that a first policy rate cut will occur this year. Our base scenario remains for unchanged rates in November and a 50 bps rate cut in December. The Czech koruna holds firm today (EUR/CZK 24.45) despite the soft data/minutes and the new rise in global core interest rates.
