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 continue to see further downside potential for long-term yields towards 2024 and expect US economic momentum to weaken going forward, read our reflections on last week’s events and our long-term view from Research US – Bond yields headed lower towards 2024, November 3.
Israel-Hamas war: International pressure for a ceasefire in the war between Israel and Hamas appears to be mounting as civilian casualties mount. U.S. Secretary of State Thomas Blinken visited the West Bank on Sunday for talks with Palestinian Authority President Mahmoud Abbas and the foreign ministers of Qatar, Saudi Arabia, Egypt, Jordan and the United Arab Emirates, and will meet with Turkey’s foreign minister later today (see Reuters).
The U.S. and Israeli defense ministers discussed the issue yesterday, and U.S. Vice President Harris will lead a call today to discuss humanitarian aid to Gaza. Still, a short-term solution appears elusive, as Netanyahu continued to insist that “there will be no ceasefire without the return of the hostages.
There were also strikes on both sides of the border into southern Lebanon over the weekend as tensions between Israel and Hezbollah continue to rise. However, Hezbollah leader Nasrallah did not announce the terrorist organization’s full participation in the war in his speech on Friday.
Stocks: Stocks rallied again on Friday as cooling jobs data eased inflation and yield fears. The S&P 500 jumped another 0.9% and the small cap Russell 2000 jumped a full 2.7%. This puts the latter up a full 8% for the week and the S&P 500 +6%. This is the strongest US weekly gain in a year.
Europe and the Nordics were a bit weaker, though, up 3% for the week, so expect them to 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%. Funding candidates were found in defensive sectors such as energy or consumer staples.
FI: US 10Y Treasury yields retreated somewhat after the initial rally on the back of the US employment data, closing at 4.58% after dipping below 4.5% on Friday.
However, with the Federal Reserve done hiking for the time being, 5% seems to be the top for 10Y Treasury yields and we should expect the steepening of the yield curve to continue, but more from the short end rather than the bearish steepening we have seen so far. As a result, the significant rise in the term premium on the 10-year US Treasury yield that 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 another solid day with the iTraxx Xover tightening 6bp and the Main tightening almost 2bp, bringing both indices to their tightest since mid-September.
