It is time for NFP

In focus today

In the US, focus will be on US October Jobs Report. We think non-farm payrolls growth slowed down to 130k (Sep: 254k) both due to weather-related distortions and less favourable seasonal adjustment. Average monthly earnings growth likely slowed down to 0.2% m/m s.a. and unemployment rate remained steady at 4.1%. Later, markets will also closely follow the ISM Manufacturing index for October, the flash PMIs pointed towards still stagnating growth in the manufacturing sector.

In Sweden, PMI for the manufacturing sector is due at 08:30 CET. The overall index has hovered above the 50 level for most of the year and at 51.3 in September. However, the very weak NIER survey alongside declining new orders and rising delivery times suggest that there could be a setback in PMI as well, possibly below the 50-threshold. If PMI drops, it will add another ‘soft activity’ argument for the Riksbank to cut by 50bp next week.

In Norway, we receive the unemployment rate for October. The Norwegian labour market remains relatively tight, with continued growth in employment and only a moderate rise in unemployment, even though growth has been weak for more than a year. This is resulting in productivity growth being weak, and partly negative. We expect that unemployment will continue to rise moderately beyond 2025 even if growth picks up as productivity picks up. We also believe that this tendency was visible in the October figures, but the unemployment rate was most likely unchanged at 2.1% s.a.

In Switzerland, inflation figures for October will be released at 08:30 CET. Consensus expects headline to remain unchanged at 0.8% in October (vs the SNB Q4 forecast at 1.0% y/y) and similarly for core to stay put at 1.0%.

Economic and market news

What happened overnight

In China, Caixin PMI rose to 50.3 in October (cons: 49.7, prior: 49.3) largely helped by stimulus measures helping pick up the economy. The manufacturing activity expanded for the first time since April, indicating signs of economic stabilization. This supports the picture painted by the official PMIs for October, which also suggested economic recovery.

What happened yesterday

In euro area, HICP inflation in October came in at 2.0% in October (cons: 1.9%, prior: 1.74%). The increase was driven by energy inflation and food prices while core inflation was unchanged at 2.68% y/y (cons: 2.6%, prior: 2.66%). The increase in core inflation of 0.20% m/m s.a. was mainly driven by service prices rising 0.3% m/m with goods prices unchanged at 0.0% m/m. The October release mimics the picture we saw in the recent months (except September) of underlying inflation slowly moving lower amid a still elevated services price pressure but clearly absent goods price inflation. It shows that the very soft data in September was only a “blip”. As momentum in inflation is still heading in the right direction, but not as fast as the September data suggested, today’s inflation data supports the case for a 25bp cut by the ECB in December against a “jumbo” cut.

The unemployment rate declined to an all-time low of 6.3% in September (cons: 6.4%, prior: 6.4%). However, the number of unemployed persons rose slightly by 13k indicating an overall stagnant labour market but at a historically strong level. The small increase in the number of unemployed persons was due to France while the number in Germany surprisingly fell in Eurostat’s measure. The hard data on labour market remains strong also supporting the case for gradual cuts by the ECB.

In the US, the September PCE data came out close to expectations, with core PCE price index increasing by 0.3% m/m (cons: 0.3, prior: 0.1%). Core services PCE inflation picked up slightly from the previous month with 0.3% m/m s.a. (prior: 0.2%) but nothing dramatic. We also got the latest weekly jobless claims surprising to the strong side with 216k (prior: 227k) and the Q3 Employment Cost Index surprising to the downside (wages and salaries up +0.8% q/q, from +0.9%). Even if the decline in jobless claims could reflect fading weather-effects, the data overall supports the soft-landing story. Cost pressures are fading but broader labour market conditions remain solid.

In the UK, in response to UK budget concerns GBP was one of the big losers yesterday, with EUR/GBP breaking through the 0.84 mark, and UK yields continued climbing. We think that ultimately concerns will fade, and markets will calm with BoE meeting coming up on Thursday. However, we acknowledge that the expansionary budget, primarily funded through increased borrowing coupled with recent rise in borrowing costs makes the case for fiscal sustainability increasingly difficult. This may lead to a pull-back on certain measures from the Labour government.

In the Middle East, while there seems to be some optimism around a 60-day pause in fighting for Lebanon, Hamas announced yesterday that they will reject any offer that would not bring a permanent end to the war in Gaza. Meanwhile, in Iran, two top officials said that the country plans to respond to Israel’s missile attack. Whether and how Iran would respond, remains unclear. Israel’s recent attack severely damaged Iran’s defence capabilities, and hence, it is now more vulnerable to any attacks coming from Israel. Anonymous government sources in Iran said that they are preparing a list of military targets in Israel but that the attack would very likely happen only after US election.

Equities: Global equities declined yesterday, marking the first significant drop in a while, with pronounced sector disparities and again not driven by macroeconomic factors. Although realized earnings data remains solid, this have not sufficed to meet the elevated outlook expectations, particularly for technology companies. The global technology sector experienced a 3% decrease yesterday, with the US suffering the most significant losses in the regional comparison. It is also noteworthy that the VIX index escalated to 23 and the MOVE index reached a new year-to-date high, despite yields being relatively flat yesterday. Given the massive influx of macro and micro news we are currently receiving, investors are evidently anxious, particularly with the impending 5 November US election, leading to derisking and event hedging. In the US yesterday, the Dow fell by 0.9%, the S&P 500 by 1.9%, Nasdaq by 2.8%, and the Russell 2000 by 1.6%. Asian markets are in the red this morning, led by Japan, which is down approximately 2.5%, while Chinese markets are bucking the trend. US and European futures are trading higher this morning, ahead of another eventful day.

FI: Yesterday’s session was a bit volatile with 10Y US Treasuries rising 5bp early in the day, before falling back to the starting point yesterday at 4.30%. We saw almost the same picture in the European market, where government bond yields initially rose before declining in the afternoon. The Bund ASW-spread continues to grind tighter and as discussed in our weekly, a test of the 0bp-level seems reasonable.

FX: EUR/USD drifted to the upper end of the 1.08-1.09 range. USD/JPY declined following a BoJ hold with a slightly hawkish tone. EUR/GBP rose above 0.84, as GBP was among the big losers in yesterday’s session, with UK budget concerns continuing to weigh on the currency. EUR/SEK remains around 11.60. October was an abysmal month for SEK, with losses close to 3% vs. EUR and over 5% vs. USD. EUR/NOK is approaching the 12.00 mark, trading just below.