Markets
ADP, the compiler of the unofficial/private labor market report ahead of the monthly payrolls, announced it’ll produce a four-week moving average of the latest total private employment change, starting today. The gauge will be published every Tuesday except in the week when its monthly jobs report is on tap. The inaugural release showed an average increase of 14 250 jobs in the four weeks ending on October 11. The bond market seems to approve with yields shortly after the release rising several basis points. Moves remain technically irrelevant though with current changes varying between +0.3 (30-yr) and 1.8 bps (5-yr). Other US data today included Conference Board consumer confidence easing from an upwardly revised 95.6 to 94.6. An improvement in the present situation was offset by a more downbeat future assessment (holding near the lows of the past three years ex. Liberation Day). European rates barely budget, unfazed by the newest Bank Lending Survey nor by the ECB consumer inflation expectations September questionnaire. The year ahead gauge eased to 2.7% from 2.8% while the longer-term ones remained unchanged at 2.5% (3-yr) and 2.2% (5-yr). Economic growth and unemployment expectations stabilized at -1.2% and 10.7% respectively. The latter is to be compared with the 10.2% consumers perceived the unemployment rate to be currently, indicating they hold a relatively stable labour market outlook. Stocks in Europe are slightly down on the day while those in the US hit new record highs again, powered by Big Tech (eg. Microsoft). Tomorrow’s and Thursday’s Q3 earnings from Alphabet, Microsoft, Meta, Amazon and Apple (which hit the $4tn market cap) may be pivotal in sustaining the risk rally.
The pound is suffering on FX markets. BRC October data this morning showed food prices dropping 0.4% m/m, the most since 2020. This followed last week’s reveal by the official CPI that food inflation already eased more than expected back in September. The ones at the Bank of England citing strongly rising food prices (and its critical role in shaping inflation expectations) as a reason not to lower rates see their argument weakened. UK money markets raise easing bets for the November 6 meeting to more than 30%. That kicked of initial GBP weakness with the technicals taking over afterwards. The topside EUR/GBP break out of a symmetrical triangle formation was followed by the pair piercing through the July 2025/November 2023 highs near the 0.877-zone. EUR/GBP 0.8867 serves as an intermediate resistance ahead of the symbolical 0.90 barrier. GBP/USD slides to its 200dMA around 1.323. The Japanese yen is at the other side of the spectrum, outperforming all major peers. USD/JPY trades around 152.25. We find the euro and dollar in between, keeping each other balanced. EUR/USD is going nowhere around 1.164 with all eyes now moving to the Fed and ECB. Aside from a rate cut, the former is expected to halt QT to ensure there’s still an ”ample” amount of liquidity in the system. The overnight bank lending rate (SOFR) meanwhile moved back above the Fed’s upper bound rate (4.25%).
News & Views
The ECB’s quarterly Bank Lending Survey (Q3) showed banks reporting a small, unexpected net tightening of credit standards (net percentage of banks 4%) amid perceived risks to the economic outlook. Credit standards remained unchanged for housing loans and tightened moderately for consumer credit (net 5%). Firms’ demand for loans increased slightly in net terms (2%) but remained weak amid geopolitical uncertainty and trade tensions. Demand for housing loans continued to increase substantially (net 28%), while demand for consumer credit was broadly unchanged (net 1%). EMU banks furthermore reported a small net tightening impact of NPL ratios and other credit quality indicators on their credit standards for loans to firms.
More details emerge from last week’s fourth plenum in China as the government publishes more documents of its plans for the next five years. The Communist Party will form an economic development model driven by domestic demand and powered by consumption. Together with significantly boosting consumption to become less reliant on exports they aim to keep tech and manufacturing as top priorities. Manufacturing should remain at a “reasonable” level as a share of GDP compared to 2020 guidance to keep it “basically stable”. Other highlights from the five-year plan include a vow to enhance fiscal sustainability but pursue a proactive fiscal policy and the earlier reported promotion of the internationalization of the Chinese renminbi.
