Market Movers Today
The main event today will be the US Non-Farm Payrolls report, which will be released an hour earlier than usual at 13:30 (CET) due to the switch to standard (winter) time. We expect job growth to cool back to the pre-September trend of +180k, but still show solid labor market conditions.
Markets will also keep a close eye on average hourly earnings growth, which slowed significantly in Q3.
In the US, we also get the ISM non-manufacturing data, which has recently been much stronger than the S&P services PMIs. It will be interesting to see if the divergence continues.
In the euro zone, we get the unemployment data for September. The unemployment rate was 6.4% in August, an all-time low.
We also get services PMIs from Sweden and unemployment data from Norway.
The 60-second overview
Norges Bank: As widely expected, Norges Bank left monetary policy unchanged yesterday, but more importantly, it explicitly opened the door to keeping rates on hold in November as well if underlying inflation continues to moderate. This is in line with our view, but was a dovish surprise for the NOK markets.
In our view, markets may still be underestimating the potential for Norges Bank to be among the first central banks to eventually turn to rate cuts. Read our full report: Reading the Markets Norway: Norges Bank Review – The door is open for an ‘unchanged’ decision in December, November 2.
Bank of England (BoE): The BoE left its key rate unchanged yesterday, in line with expectations. We still believe that the BoE is already done with rate hikes as GDP growth is set to slow and the unemployment rate could continue to rise. Governor Bailey tried to push back against markets pricing in rate cuts for next year, but short-end gilt yields still fell and EUR/GBP ended the press conference higher. See our Bank of England Review – BoE paves way for more EUR/GBP upside, November 2.
US Politics: Last night, the US House of Representatives passed a USD 14.3 billion funding package to support Israel. However, Senate Majority Leader Schumer quickly responded that he would not bring the bill to a vote in the Senate because, although the level of support was in line with Biden’s earlier proposal, the new spending was offset by cuts to the Internal Revenue Service (IRS) and the bill omitted any aid to Ukraine.
The CBO estimated that cutting IRS funding would reduce expected tax revenues and that the bill would still increase the deficit by about $26.7 billion. In any case, the proposal highlights that approving new funding for Israel and/or Ukraine aid – as well as avoiding a government shutdown – will not be an easy task, even with the new House Speaker Mike Johnson now in place.
Stocks: Stocks extended a rebound that turned into a full-blown rally by the end of the session. The S&P 500 rose 1.9%, the Stoxx 600 1.7% and the Russell 2000 a whopping 2.7%(!). This puts the US on track for a gain of nearly 5% for the week. There was no single catalyst behind the rally, but as we have argued, the recent weakness in equities should be treated as a correction and not the start of a bear market.
Therefore, oversold conditions on top of Fed easing are just enough for a bounce. It has been a broad-based rally with real estate, consumer discretionary and financials leading the way. Asia is catching up this morning, but US futures are flat.
FI: The first half of yesterday’s trading session was dominated by yields catching up with Wednesday’s sharp drop in US yields. With no particular news, yields started to drift higher in the afternoon, resulting in EGB yields ending the day around 5-6bp lower, with the exception of BTPs which gained 9bp on the day. Markets priced in an additional 3bp of rate cuts and are now pricing in 93bp of ECB rate cuts by 2024.
European curves flattened significantly from the long end, with the 2s10s EUR swap 5bp flatter at -29bp. We still expect steeper curves to prevail going forward.
FX: All G10 risk gained against the USD, but only modestly. EUR/GBP traded lower towards 0.87 as the BoE pushed back on rate cut talk. The NOK initially weakened as Norges Bank refrained from raising rates, but recovered some ground later in the session.
Credit: Credit markets tightened massively yesterday with the iTraxx Xover tightening 21bp and the Main tightening 4.5bp. Activity also picked up in the primary market with several deals priced, including a hybrid deal from APA Infrastructure which was almost 10x oversubscribed despite the deal tightening 75bp from IPT to final pricing.
Nordic Macro
Norway: We expect the NAV unemployment rate (seasonally adjusted) to have risen marginally to 2.0% in October, as labor demand appears to have slowed during the month.
