Market movers today
Today we get the key US jobs report for September. We expect data to be generally consistent with a further cooling of the economy and expect non-farm payrolls growth at +140k and average hourly earnings at +0.2 % m/m SA, both is a bit below consensus.
German factory orders from August are published. Factory orders have declined both this year and last year in sync with the extremely weak manufacturing sector.
The 60 second overview
US yields rose from the long end again extending the recent trends. The recent uptick in long-end UST yields reflects rising term premium, while risk-neutral rate expectations have remained stable. We published Research US – Yields not bound to remain high for long, 5 October, in which we also examine the unfavourable supply-demand dynamics that are likely to persist into Q4, but we still see improving demand driving yields lower, with 12M 10y forecast at 3.70%, though risk is tilted to the upside.
Yesterday’s US jobless claims did not provide any evidence of a noteworthy cooling of the US labour market. Initial jobless claims came in more or less in line with expectations at 207k (cons.: 210k, prior: 205k), while continuing claims stood at 1664k (cons.: 1671k, prior: 1665k). The four-week moving average of initial claims edged down to 209k, the lowest level since February. After mixed signals on the latest development in the US labour market during the week (strong JOLTS data and weak ADP employment report), we look for non-farm payrolls at 140k today, which is 30k lower than the consensus. Additionally, we expect average hourly earnings at 0.2% m/m, slightly below consensus of 0.3% m/m. If we are right, EUR/USD will most likely move higher on the release, in line with our tactical case based on US data starting to disappoint.
Equities: Yields stalled which was enough for equities to calm. Europe somewhat higher (Stoxx 600 +0.3%) and US a tad lower (S&P 500 -0.1%) but both a bit off best levels. Growth and quality sectors outperformed as the rates-fear eased, with sectors such as real estate, health care, financials and utilities in the lead (Evolution, Atlas, Nibe, Orsted in the Nordics). Our Nordic select list member Pandora also surging 12% amid higher financial ambitions at the CMD. One sector worth noting is consumer staples, down -2% in the US session. This has been one of the worst performing sectors in the rates surge and underlines the risk of being overweight defensives when risk free alternatives (bonds) are rising.
FI: European yields were trading mostly sideways yesterday until late afternoon when European curves shifted lower by 3-5bp with the move slightly more pronounced in the longer end. Real rates edged slightly lower with inflation swaps broadly unchanged on the day. The news flow yesterday was mainly characterised by central bank speakers indicating that they are done on rates, where particularly ECB’s Kazimir said that changing PEPP reinvestments may be considered once they are certain that they are done hiking rates. Villeroy said that past expectations for rate cuts were too optimistic and also that he sees no justification for rate hikes. The transatlantic spread widened again yesterday by 2bp to 183bp in the 10y UST vs. 10y Bunds. This is the widest since November last year.
FX: In yesterday’s session EUR/USD extended the latest rebound with the cross hitting the 1.0550 level. Meanwhile, the rally in EUR/NOK and EUR/SEK eased while USD/JPY dropped to 148.50 on the decline in global yields.
Credit: Overall the slightly weak tone in credit markets continued yesterday with iTraxx Main 2bp wider at 87bp while iTraxx X-over was 7bp wider at 461bp. Due to the general market turmoil following higher interest rate levels primary activity remained muted – although we saw some activity both in Scandi and European space.
Nordic macro
In Norway, the government will be unveiling its fiscal budget for 2024. We are most interested in how expansionary the budget will be – in other words, how the proposals would affect economic activity. We expect the budget to be more or less neutral, which would tie in nicely with Norges Bank’s projections in the September monetary policy report.
The main event in Sweden is the Debt Office’s release of the September budget balance. The accumulated difference vs. forecast up to and including August is a hefty SEK 46bn surplus. The main reason for this was much smaller than expected payments in August for company electricity support (SEK 30bn less than assumed), but corporate taxes were also higher than expected. The Debt Office forecasts a SEK 8bn deficit in September and it seems fair to assume that delayed payment of electricity support can push that deficit considerably higher.
