Market movers today
Main focus this week will be the US CPI report on Thursday where we look for a below consensus reading on core CPI of 0.2% m/m (consensus 0.3% m/m). In the Nordics we also have CPI from Denmark, Sweden and Norway during the week.
Today we only get tier-2 data with the Euro sentix survey for October and Norwegian monthly GDP for August.
The 60 second overview
The US jobs report showed a strong increase of 336,000 new jobs in September and an unchanged unemployment rate at 3.8%. This situation poses challenges for the Fed, which may need to maintain higher interest rates for an extended period to control inflation. As a result, the 10-year Treasury yield reached 4.89%, highest level since 2007, while the 2-year yield hit 5.15%, remaining close to its recent multi-year high of 5.20% from mid-September. The US services sector (Leisure & Hospitality, Government, Education & Health) remains the main drivers of employment growth, but it overall looks fairly broad across sectors (so no clear one-offs explaining the uptick). The labour force rises by a more modest 90k, so even though unemployment rate remains unchanged at 3.8% it seems like labour markets have actually tightened in September. This is worrying for the Fed, as overall labour market conditions remain too tight for comfort. During the weekend Fed’s Bowman repeated her call for the Fed to probably need to hike policy rates further.
In early trading session we have seen oil jumping almost 4% to USD 87 per barrel (Brent), while US treasury futures rose, implying lower yields, due to the rising tensions in the Middle East this weekend.
Equities: Global equities were higher on Friday and higher for the week. Hence, the streak of weeks with lower equities was broken despite a lot of focus on higher yields challenging the outlook for equities.
Interestingly on Friday, equities were higher although yields were higher. The reason was a very solid non-inflationary non-farm payroll report. Cyclical sectors outperformed both Friday and last week while consumer staples and energy were the laggards. Major indices on Friday: Dow +0.9%, S&P 500 +1.2%, Nasdaq +1.6% and Russell 2000 +0.8%. Asian markets this morning is a mixed bag. A couple of countries closed for holidays while typhoons are keeping Hong Kong closed. Elsewhere markets are affected the by the attack in Israel sending oil prices higher and energy stocks outperforming. Futures in Europe and US are lower this morning in a risk-off move related to the increased tensions in the Middle East.
FI: Friday’s surprisingly strong US non-farm payrolls number sent yields higher initially, but yields ended lower on the day heading into the weekend. 10y German bunds ended the week virtually unchanged from there, around 2.88%, although it was a volatile week, with notably 10y Bunds trading above 3% at one point.
FX: EUR/USD saw an uptick after 11 consecutive weeks of decline, gaining ground following the US jobs report release on Friday. EUR/SEK ended Friday’s session just below the 11.60 mark gearing up for a string of important releases out this week among others September CPI and the Riksbank’s activity report for the hedging of the FX reserves. EUR/NOK has regained some renewed tailwind the past week. We stay short NOK/JPY.
Credit: Overall credit markets digested the macroeconomic numbers out of the US Friday. This left both primary and secondary activity low. Both iTraxx Main and iTraxx X-Over saw only marginal changes.
