Markets
European equity markets stabilized or saw minor profit taking after yesterday’s strong run with investors’ focus turning to the US payrolls report. At the same time, oil held near recent peak levels ($83 p/b). However, this time there was no clear directional market reaction, neither on equity nor in core bond markets. European inflation swaps/expectations even eased slightly off recent peak levels. The US payrolls brought quite a complex message for markets. Payrolls growth missed expectations by quite a big margin. The US economy added only 194 000 jobs in September versus 500 000 expected. However, the previous two months received a combined 169 000 upward revision and this month’s miss was mainly due to a decline in government employment. In this respect BLS reported potential distortions in the seasonal adjustment for the government education numbers. Average hourly earnings were strong (0.6% M/M), but the previous month was downwardly revised, resulting in an as expected 4.8% Y/Y. The unemployment rate (household survey) declined from 5.1% to 4.8% as employment in the survey rose 526k, while at the same time the labour force declined slightly. Once again no clear-cut story line. We assume that the report won’t stop the Fed from announcing tapering of bond purchases at the November 3 meeting. Still, the report was bit too diffuse to trigger an unequivocal directional market response. US yields dropped temporary after the report, but currently show again a modest steepening (2-y +0.4 bp, 30-y +3bp). The US 10-y yield continues testing the 1.60% barrier, but it looks tough. European/German yields mainly followed the post-payrolls reaction in the US, with yields rising modestly, too (0.1 bp for the 2-y; + 2.5 bp for 10-y yield). The -0.15% barrier in the German 10-y stays within reach. Peripheral EMU bonds continue to show resilience with the 10-y Italian spread narrowing 2 bp. European equities hardly reacted to the payrolls with most major indices hovering near yesterday’s closing levels. US indices also opened unchanged.
On the FX market, the dollar lost minor ground in the run-up to the payrolls release and headline payrolls miss triggered a very brief USD setback. EUR/USD tried to regain the 1.158 area, but the move had no strong enough momentum. The USD fought back to currently EUR/USD 1.156. Similar story for USD/JPY with the pair easily returning just below the 112 big figure. DXY found support in the 94 area (94.15). Sterling and the euro kept each other in balance. EUR/GBP held a tight range just below the 0.85 big figure.
News Headlines
Hungarian inflation accelerated from 4.9% to 5.5% in September. The figure matched analyst estimates and was the strongest pace since 2012. Core inflation (ex indirect tax effects) rose by 0.4 ppt to 4% and has effectively reached the upper bound of the MNB’s 3% +/- 1% inflation target. Demand-sensitive inflation, a core inflation measure which excludes processed food, rose to 4.1%, a 17-year high. Adding to the September price pressures was a further rise of industrial goods inflation as well as food prices. Services prices fell 0.1 ppt. The Hungarian forint lost ground today. Part of the move already occurred in the run-up to the release though. EUR/HUF is back north of 360(.48). In Central-Europe, only the zloty is worse off in the wake of NBP chair Glapinski pushing back against further tightening expectations and a ruling of the Polish constitutional court over the EU’s law order that brings the country and the European bloc again on collision course.
Canadian employment grew a consensus-crushing 157.1k in September (60k expected). Full-time employment (+193.6k) covered for the loss in part-time employment (-36.5k). The unemployment rate eased from 7.1% to 6.9%, a new post-Covid low. Furthermore, the participation rate jumped from 65.1% to 65.5%, equaling the level seen just before the crisis struck. The Canadian loonie strengthened against a weaker USD and is flirting with the USD/CAD 1.25 barrier. EUR/CAD fell off a cliff in recent days amid oil price support for CAD and an ailing euro. The currency pair extends losses to trade at the weakest (strongest for CAD) level since February 2020 (1.445).
