Trading stayed muted going in the September payrolls report. Data earlier this week (ADP report, poor ISM readings) suggested the US economy was heading towards a (stronger than expected) slowdown. It caused a ‘recession trade’ on financial markets, similar to the one in August. Markets were thus keen to see whether the labor market/American consumers, the US economic stronghold, would remain intact. The September payrolls indeed showed no dramatic slowdown (so far?!). Some 136 000 new jobs were created. That’s slightly below expectations (145 000) but compares with a significant upward revision for August (168k from 130k). Jobs were cut in the manufacturing sector though (-2 000), in a new troubling sign for the industry. The unemployment rate declined to 3.5%, the lowest level since 1969. The participation rate stabilized at 63.2%. Wage growth disappointed however, with no increase on a monthly basis (vs. a 0.2% MoM rise anticipated) and a lesser than expected yearly growth of 2.9% (vs. 3.2% consensus). All in all, the September report confirms the solid state of the US labor market. But given the lack of inflationary (wage) pressures, the data in theory pushes the Fed in neither direction (of more or less easing). Therefore, it’ll be very interesting to listen to Fed chair Powell’s conclusions regarding the economic environment and monetary policy, if any, later today. The market reaction to the report remains fairly muted. The US yield curve bear flattens with yields rising some 2 bps (2-yr) to 1 bp (10-yr). German yields barely changed today as did peripheral spreads (narrowing 1 to 2 bps). EUR/USD is equally going nowhere, trading near opening levels around 1.097/8 after some payrolls induced intraday volatility. Moves in USD/JPY were a bit more outspoken: the currency pair ‘rebounded’ from intraday lows to 107 currently.

The EU was not convinced by UK PM Johnson’s Brexit proposal yesterday. However, it did not set a one-week deadline for Johnson to come up with a revised Brexit deal, an EC spokeswoman said today. She added that technical negotiations between UK and EU teams are ongoing. In another sign of a constructive attitude, Irish foreign minister said there is a “huge appetite to be generous” to the UK. The pound barely moved on the news however. It did reverse some intraday losses temporarily after a lawyer told the Scottish court that PM Johnson promised to send a letter requesting a Brexit delay if he can’t get a deal by October 19. Sterling nevertheless stayed in the defensive. EUR/GBP is changing hands at around 0.892 vs. 0.89 at the open. Cable loses some ground post-payrolls, trading at 1.23 currently.

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According to Spanish acting Economy minister Naida Calvio, the government could revise its growth forecasts to take into account external factors, such as a disorderly Brexit and trade tensions. Aside from these economic factors, recent methodological changes might also affect the new growth forecast. The country has to give updated projections to the EU by October 15.

The MPC of the  Reserve Bank of India cut its repo rate for the fifth consecutive meeting. The policy rate this time was reduced by 25 bp to 5.15%, the lowest level since March 2010. The RBI indicated that it will maintain an accommodative policy stance as long as it is necessary. The RBI also downwardly revised its growth forecast for fiscal 2020 to 6.1% from 6.9%.


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