Market movers today
Today’s key event is the US labour market report after the surprise message from the FOMC on Wednesday. Based on the Markit PMI employment sub-index, we should expect a fairly weak job report in terms of job growth. We expect an increase of around 50,000 (which, however, is pulled down by a strike in General Motors, who are counted as unemployed in the job report). Both Markit PMI manufacturing and regional surveys suggest ISM manufacturing has risen in October. We expect a rise to 49.0.
In the UK, the manufacturing index is due today. Despite the weakness in manufacturing in the rest of Europe, we could see an increase in the UK index, as companies may have stockpiled ahead of the 31 October Brexit deadline. We expect an increase to 49.0 from 48.3 due to stockpiling.
ECB’s resumption of the QE programme in November will commence today. Note that today also marks the first day with a new ECB President as Christine Lagarde takes office.
Selected market news
European and US bond markets continued the rally and the curve flattened further, as the Chicago MNI PMI dropped to 43.2, clearly pointing to a manufacturing recession in the Chicago area. Euro area headline inflation slowed further to just 0.7% in October, although core inflation actually moved marginally higher to 1.1% from 1.0%. That said, we actually had some better Chinese PMI data overnight. The Caixin PMI rose from 51.4 to 51.7. Especially new orders are looking strong. However, note that the official PMI released yesterday did not show any improvement for China.
There were also media reports that China will be reluctant to sign a long-term trade deal with Trump. The reports come as China and the US get ready to sign the ‘phase 1’ deal. However, the decision by the Chilean President to cancel the November 16-17 APEC meeting in Santiago due to social unrest in Chile has created a logistic issue of where to actually sign the deal.
Global bonds rallied despite the decision by the FOMC on Wednesday to be on hold for now. That said, the Fed is still data dependent and unsurprisingly, Trump sent out yet another Fed-bashing tweet saying that the Fed had called it wrong from the beginning.
The ECB’s tiering was introduced on Wednesday and yesterday brought the first STR-fixing set under the new tiering setup. It was unchanged at -0.545% underlining that the tiering system so far has resulted in no upward pressure on short-end rates, which supported bonds in the short end of the curve.
