HomeContributorsFundamental AnalysisOctober Jobs Report Sends Mixed Signals

October Jobs Report Sends Mixed Signals

Market movers today

This week is quiet in terms of data. Hence, focus will be on central bank speeches and on the US mid-term elections on Tuesday.

Today, we get German industrial production data for September. Consensus expects a moderate recovery at 0.2% m/m compared to -0.8% in August. We also have a few ECB speakers on the wires, most notably President Lagarde.

Later in the week, the US vote in the mid-term election on Tuesday. Republicans are favoured to win control of both house and senate, although the Senate race remains a close call. We expect quite a muted market reaction even in case the vote results in a divided Congress.

On Thursday, we will get US CPI for October where we are looking for another high print at 0.7% m/m and 8.0% y/y.

On Friday, we get the Q3 GDP print for UK which we expect to signal that Britain is already in a recession.

The 60 second overview

US Jobs Report: While the headline October NFP beat expectations (261k; Consensus 200k) and September figures were revised higher, markets focused more on the weaker household survey, which signalled a 328k decline in employment. Risk markets rallied, and EUR/USD moved higher back above 0.99. Despite the uptick in unemployment rate (to 3.7%), wage growth accelerated further (0.4% m/m, from 0.3%) and labour force participation declined, suggesting overall labour market conditions remain tight. Fed’s Barkin and Evans highlighted later in the evening that even if slowing growth warrants moderating the pace of rate hike in December, the terminal rate level will likely be higher than expected in the September projections. We agree and stick to our call of Fed Funds rate reaching 5.00-5.25% in February.

China: Chinese markets rallied sharply on Friday following some rumours that China might be considering easing the strict Covid-policies. However on Sunday, the National Health Commission stated that: “Previous practices have proved that our prevention and control plans and a series of strategic measures are completely correct”, dampening hopes of a rapid change. Overnight, the October trade data highlighted how Chinese economy is being hit by both weak domestic activity and the global slowdown, as both imports and export declined against expectations.

Equities: The equity rally lost its steam last week, but recouped some of its losses on Friday. Fed played both the good and the bad cop last week, with Powell guiding hawkishly (sending equities lower) but Fed speeches striking dovish tones (thereby lifting equities). While equities have done okay in this tug of war (S&P 500 -3% for the week), growth stocks have suffered. Growth underperformed value by 4 percentage points last week globally, which marks the worst 5-day session for growth this year. Equities generally higher on Friday, with S&P 500 closing up 1.4% led by cyclicals including materials, banks and tech stocks rising.

FI: A string of comments on Friday from various Federal Reserve officials suggest that the policy rate is likely to be higher than 5% in 2023 on the back of the solid U.S. labour market report on Friday. This week there will be more Fed speeches as well as the US inflation data released on Thursday.

FX: EUR/USD rallied on Friday, from the 0.97’s towards the 0.99’s. This seemed to be driven by US payrolls that showed an increase in US unemployment rates and thus implicitly that Fed might be closer to its end goal(s). Equally, speculation that China is ending its zero-Covid policy fuelled CNH, EUR and others.

Credit: Credit spreads as measured by CDS indices were slightly tighter on Friday, with iTraxx Europe tighter by 3bp to 110bp, while Crossover tightened by 16bp to 535bp.

Nordic macro

Sweden: This morning we get the monthly budget numbers from the Swedish National Debt Office. The SNDO forecasts a budget surplus of SEK14bn, which can be decomposed into a negative primary balance (SEK-19bn) that is compensated by large deposit inflows (SEK34bn), primarily related to Svenska Kraftnät capacity fees from the electricity market. Given that the SNDO forecast is just a couple of weeks old we would not expect to see any significant deviation.

Danske Bank
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