Markets
The jobs report coming from ADP is usually a mere appetizer ahead of the official payrolls report scheduled for release two days later. This time around, though, it’s the main dish. The US government shutdown means economic data coming from the Department of Labour (payrolls, CPI, jobless claims …) are suspended for who knows how long. The ADP version therefore gains in significance as a labour market gauge, temporarily at the very least. Private Job creation fell well below the 51k consensus view, in fact printing a negative 32k. The August reading saw a sharp downward revision to a minus 3k from +54k. ADP noted that the annual rebenchmarking resulted in a reduction of 43k jobs last month compared to the pre-benchmarked data. Looking at the broader underlying trend however, the company said that nothing had changed and “job creation continued to lose momentum across most sectors” with US employers being cautious in hiring. The report triggered a kneejerk market reaction with US yields down across the curve, led by the front end. Net daily changes vary between -2.8 (30-yr) and -7 bps (2-5-yr bucket). A Fed October cut is fully priced in now, even though the central bank – as things currently stand – will literally have zero new (critical) information compared to the September policy meeting. A follow-up move in December is discounted for around 90%. German/European rates gapped higher at or shortly after the market open before changing course afterwards. They extended the decline in sympathy with the US but are down less than <1.5 bps across the curve. The US dollar obviously trades in the defensive, in particular against the yen. Solid business confidence (Q3 Tankan) is adding to conviction of a new Bank of Japan rate hike later this month, diverging with the direction the Fed is going. USD/JPY slides to 146.8, more or less the lower bound of this summer’s sideways trading range. EUR/JPY is leaving the recent 175 highs further behind (172.5). EUR/USD ekes out a small gain to 1.175. The pair remains stuck from a technical point of view. Sterling is enjoying a strong day. Other than a constructive risk environment, we’ve seen no particular trigger. Bank of England’s Mann at a Bloomberg conference said she puts more weight on inflation, calling for a longer hold on rates. While higher rates are theoretically positive for a currency, it’s different when you’re in a stagflationary environment the sorts the UK is facing. Either way, EUR/GBP tumbles to a two-week low around the 0.87 big figure. Cable (GBP/USD) tries to settle back north of 1.35. European stocks add 0.6% with the EuroStoxx50 closing in on a record high. Wall Street opens day 1 of the shutdown slightly lower.
News & Views
A renewed drop in new orders drove the overall decline in the Czech manufacturing PMI in September (49.2 from 49.4). New sales decreased for the first time in four months. Firms continued to highlight subdued international and domestic demand conditions, alongside challenges from competition. Czech manufacturers saw a small decline in monthly output and lowered their workforce numbers again. Backlogs of work are nevertheless increasing with business confidence rising to a 3-month high. Cost burdens increased at the slowest pace YtD. Where an increase was reported, it was mostly linked to energy and foodstuff. Czech goods producers cut their selling prices at the end of the third quarter, extending a four-month decline. Prices components are consistent with 2.5% Y/Y CPI-growth in September, according to S&P global. Data will be published next Monday. CZK is still trading near best levels since end 2023 at EUR/CZK 24.27.
The Hungarian Association of Logistics, Purchasing and Inventory Management (HALPIM) said that the country’s manufacturing PMI rose from 49.1 to 51.5, moving back above the 50 boom/bust level. New orders and production volumes also returned to expansionary levels while the pace of job shedding slowed. A new increased of purchased inventories points to restocking. The improving PMI and stubborn inflation both strengthen the view that the MNB will be sidelined for longer. EUR/HUF today tested the YtD low at 389.
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