Market movers today
- Today a couple of Fed members speak (Bostic (non-voter, neutral) and Barkin (non-voter, neutral)), which will be interesting to follow to see if a consensus is emerging on the Fed Board with regard to conditions and potential timing of tapering of the Fed’s QE.
- Later this week, a key focus will be on the US CPI inflation release, where consensus is expecting a slight fall in the inflation momentum both in core and headline inflation.
- Sweden (Friday), Norway and Denmark (both Tuesday) will publish inflation data this week.
The 60-second overview
Strong US labour market: US non-farm payrolls rose by 943k in July. It was the highest job growth in 11 months and above the consensus forecast of 870k. After the surprisingly weak ADP job number earlier in the week the market had prepared itself for a relatively weak number. The unemployment rate fell by half a percentage point to 5.4% and annual wage growth rose by 4.0% compared to 3.6% the month before. The market now awaits the US inflation data on Wednesday to see if the higher wage growth pushed up inflation. The market expects a 0.4 monthly gain (5.3 % y/y) down from 0.9 % m/m and 5.4 % y/y.
Encouraging report: The report is encouraging specifically in two ways. Firstly, it underlines that despite fading government support the labour market continued to improve. Secondly, the US labour market so far sees little impact from the spread of the Delta-variant and the surge in infections in the US.
Market reaction: The report immediately pushed US Treasury yields higher by roughly 5bp to 1.30%. The 10Y yield earlier last week traded briefly below 1.15%. US equities reacted overall positively to the report with S&P500 up 0.4% on Friday, though the “duration-sensitive” growth stocks at NASDAQ fell 0.4%. EUR/USD dropped below 1.18.
Infrastructure package: The USD 550bn US infrastructure package moved a step closer Sunday as the last procedural hurdles in the Senate were cleared. It paves the way for a vote on the final passage on Wednesday. The Biden administration hopes for bipartisan support in the Senate to speed up the process. The infrastructure package still has to go through the House.
German election: Support for Merkel’s CDU/CSU bloc fell in the latest INSA poll released over the weekend. The poll shows the challenge facing Armin Laschet approval ratings especially after his appearance during the flooding in July.
Gold and silver drops. The US labour market and the stronger US dollar slowed demand for safe-havens such as gold and silver. Gold dropped 2.3% right after the report and tumbled another 4% at the opening in Asia this morning, though prices recovered some of the losses later in the session. Bitcoin and other cryptocurrencies on the other hand reached a two-month high over the weekend.
Bytedance IPO: The regulatory crackdown from China on especially tech companies has attracted a lot of negative market attention over the last month. In that respect, it should be encouraging for risk appetite that Bytedance – the owner of TikTok – has revived a plan to go public according to FT.
Equities: Equities ended flat Friday while a huge sector rotation took place after the very solid non-farm payroll report. Sharply higher yields and steeper curves made banks and rest of the financials outperform while growth stocks were lower. Interesting to see the VIX index dropping a full index point despite markets overall being flat. Yields are a little higher again this morning and some of the rotation continuing in Asia in a generally positive session. The Japanese market is closed today. European and US futures are lower led down by growth stocks.
FI: US Treasury yields continued to rise on Friday with 10Y rising 7.8bp on the back of the stronger than expected US labour market report on Friday. Yields had already begun to rise after the comments from Fed’s Clarida on Thursday. The rise in US yields also had a spillover effect to European yields and 10Y Germany rose 5-6bp, and is again above -50bp.
FX: EUR/USD dropped firmly below 1.18 on Friday after the US jobs report surprised the market. Scandi currencies saw temporary strength but failed to break out of recent ranges. EUR/NOK ended the week around 10.45 and EUR/SEK close to 10.20.
Credit: Friday saw positive sentiment in credit markets where iTraxx Xover tightened 2½bp (to 231½bp) and Main 0.3bp (to 46bp). HY bonds tightened 2bp while IG saw a small widening of around 1bp.
