Focus Turns to US Jobs Report

Market movers today

The main event today will be the US jobs report released an hour earlier than usual at 13:30 (CET), due to the shift to standard (winter) time. We expect jobs growth to cool back towards the pre-September trend at +180k, yet still continue to illustrate solid labour market conditions. Markets will also keep a close eye on the average hourly earnings growth, which slowed markedly through Q3.

In the US, we also get the ISM non-manufacturing data, which has been significantly stronger than S&P service PMIs recently. It will be interesting to see whether the divergence continues.

In the euro area, we get September unemployment data. The unemployment rate was 6.4% in August, an all-time low.

We also get service PMIs from Sweden and unemployment data from Norway.

The 60 second overview

Norges Bank: As widely expected, Norges Bank left monetary policy unchanged yesterday, but more importantly, it explicitly opened the door for keeping rates on hold in November as well, if underlying inflation continues to moderate. This is in line with our view, but was a dovish surprise for NOK markets. We think the markets could still underestimate the potential for Norges Bank to be among the first central banks to eventually turn towards cutting rates. Read our full review: Reading the Markets Norway: Norges Bank Review – Door for an ‘unchanged’ December decision is open, 2 November.

Bank of England (BoE): BoE left the Bank Rate unchanged yesterday in line with expectations. We still think BoE is already done with rate hikes as GDP growth is set to slow down and the unemployment rate could continue to edge higher. Governor Bailey tried to push back against markets pricing in rate cuts for next year, but short-end Gilt yields still declined and EUR/GBP ended the press conference at a higher level. See our Bank of England Review – BoE paves the way for more EUR/GBP topside, 2 November.

US Politics: Last night, the US House of Representatives passed a USD14.3bn funding package to support Israel. However, Senate majority leader Schumer quickly responded that he will not bring the bill up for a vote in Senate as even though the size of the support was in line with Biden’s earlier proposal, the new spending was balanced with cuts to funding for Internal Revenue Service (IRS) and the bill omitted any aid to Ukraine. CBO estimated, that cutting IRS funding would reduce expected tax revenues, and that the bill would hence still increase the deficit by around USD 26.7bn. In any case, the proposal highlights how approving new funding for Israel and/or Ukraine aid – as well as avoiding the government shutdown – will not be an easy task even with the new House speaker Mike Johnson now in place.

Equities: Equities extended its rebound which turned into an outright rally at the end of the session. S&P 500 surged 1.9%, Stoxx 600 1.7% and Russell 2000 a full 2.7%(!). This takes US on track for almost 5% gain for the week. There was not a single trigger behind the rally, but as we have been arguing, the latest equity weakness should be treated as a correction and not the start of a bear market. Hence, oversold conditions on top of Fed relief is just enough for a rebound. It was a broad-based rally with real estate, consumer discretionary and financials sticking out in the top. Asia is catching up this morning but US futures are unchanged.

FI: The first half of yesterday’s trading session was dominated by yields catching down to the strong US yield decline on Wednesday. On no particular news, yields started to drift higher in the afternoon, leading to EGB yields ending the day around 5-6bp lower, with the exception being BTPs which performed 9bp on the day. Markets added 3bp of rate cuts and are now pricing ECB to cut rates by 93bp through 2024. European curves flattened markedly from the long end with 2s10s EUR swap 5bp flatter to -29bp. We still expect steeper curves to prevail going forward.

FX: Risk on an as such all G10 gained against the USD, however only modestly. EUR/GBP traded lower towards 0.87 as BoE pushed back on talk of rate cuts. The NOK initially weakened as Norges Bank refrained from hiking but recovered some lost ground later in the session.

Credit: Credit markets took a massive leg tighter yesterday with iTraxx Xover tightening 21bp and Main 4.5bp. Activity also picked up in the primary market with several deals priced, including a hybrid transaction from APA Infrastructure, which was almost 10x oversubscribed despite the deal being tightened 75bp from IPT to final pricing.
Nordic macro

Norway: We expect that the NAV unemployment rate (seasonally adjusted) rose marginally to 2.0 % in October, as demand for labour seems to have slowed down during the month.