Markets
Market relevant data are rather scarce these days. UK labour market data in this respect at least provided some kind of ‘distraction’. Even so, the market reaction told least as much on reigning market sentiment as on a reassessment on the basis of the data content. The UK labour market report can be labelled as being soft. Monthly employment data declined 10k jobs in September, but indications over the previous months shows some signs of bottoming. August earnings data (3M/Y/) also were a bit mixed but markets apparently focused on private earnings excluding bonuses slowing from 4.7% Y/Y to 4.4%. It is seen as an indication of an easing of wage pressures (annex inflation). The unemployment rate also rose from 4.7% to 4.8%. ‘Optimists’ on the other hand could have pointed to revisions from data released earlier this year indicating that job losses after last year’s UK budget measures probably were less than feared. Even so, markets still saw the data as reinforcing the case for the BOE to maybe consider further easing sooner rather than later. Gilts outperform Bunds and Treasuries, declining between 6 bps (2-y) and 7 bps (10 & 30-y). In a congruent move, sterling is touching the lowest levels against the dollar since early August (Cable 1.326). EUR/GBP regains the 0.87 barrier (0.871).
On other markets, a risk-off sentiment again reigns after yesterday’s (equity) rebound as markets are pondering a new flaring up of trade tensions between the US and China. China retaliated against the US shipping sector after president Trump end last week threatened with additional tariffs and restrictions on US chips exports to China. US indices show losses between 1.3% (Dow) and 2% (Nasdaq) even as some major US reported stronger than expected/solid Q3 results. The EuroStoxx 50 is ceding 0.75%. In this risk-off context, US Treasuries only show modest gains, if any (2-y yield -1 bp, 30-y little changed). 2-y and the 10-y yields nearing key support at 3.5% and 4% respectively probably makes markets cautious on a stronger safe haven bid. Bunds outperform with yields declining between 2.5 bps (2-y) and 4 bp (30-y). We assume this move is also mainly due to the global risk-off sentiment rather than markets really positioning for additional ECB easing. Even so, EMU money markets now again see a >50% chance of one additional ECB rate cut next year. On FX markets, the trade-weighted dollar fails to maintain initial modest gains (DXY 99.3). The Aussie dollar is a major victim of escalating trade tensions between the US and China (AUD/USD 0.645). At the same time USD/JPY even drifts marginally lower just (152 area). EUR/USD tested the 1.1550 area. European markets are assessing the potential consequences of the budget speech of French PM Lecornu before Parliament. Amongst others, the PM apparently is prepared to suspend the pension reform to get support for some 2026 budget consolidation. At EUR/USD 1.158, the euro at least trades off the intraday lows and so do European equities. Markets apparently favour a French ‘kicking-the-can-down-the road’ scenario, rather than outright chaos.
News & Views
The International Energy Agency expects next year’s oil oversupply will be even bigger than previously thought. It now pencils in a record overhang of almost 4 mln barrels a day, or roughly 18% more than last month’s update. The revision came amid the oil producing cartel OPEC+ continuing to revive output. The IEA also assumes that non-OPEC output will increase by 1.2 mln a day next year, up 200k from the September projection. As far as demand is concerned, they forecast an increase by a well-below-trend 700k barrels a day for both this year and the next. The supply-demand mismatch led to a sharp rise in inventories by 1.9 mln barrels a day this year. While the impact on oil prices has been mitigated by China absorbing up the majority, the IEA warned that’s now beginning to change. Brent oil today drops to $62/b and is set to close at its lowest level since early May.
Chinese companies looking to operate in the European Union may soon be forced to hand over technology to EU firms, according to people familiar with the matter. The measures would apply to those seeking access to what it considers key digital and manufacturing markets such as cars and batteries. The rules would additionally require the firms to use a set amount of EU goods or labour and to create added value on EU soil. The people said they expect the measures to be applicable from November and to all non-EU firms. However, one said that the goal is to keep China’s manufacturing from overwhelming the European industry. Key to the proposal is the focus on the transfers of battery technology know-how, aimed at reducing reliance on China while strengthening the European EV industry.
