Markets
US payrolls hit a home run. Literally every bit of the report was outright strong and topped estimates: from employment growth in the establishment survey over details in the household survey (used to calculate the unemployment rate) to upward revisions in previous reports. Starting with the job gains, they were a much bigger than expected 254k. That compares to the 150k median estimate and even crushed the most optimistic one of 220k. It coincided with a +72k revision of the previous two months. Gains were broad-based with manufacturing (-8k) and the transportation & warehouse sector being the exception (-9k). Unemployment eased from 4.2% (seen as the equilibrium rate by the Fed) to 4.1%. Other readings of the household survey were exceptional as well: the labour force expanded by 150k, the number of unemployment tanked by 281k while its own employment estimate came in at a whopping 430k. Wages grew 0.4%, beating the 0.3% forecast, and brought the y/y figure back to 4%. The strong payrolls tops of a week that mostly contained other strong data including a JOLTS uptick and the services ISM.
This critical piece of information is just one of many to come in the run-up to the Fed November 7 meeting and they are bound to trigger market swings in one direction or the other. From a short-term perspective and until we get these other data points, however, it seals the debate on whether the central bank will move by 25 bps or stick to a 50 bps clip. Bets on the latter evaporated. Money markets now expect the Fed to move ahead with 25 bps on the next four meetings. US yields skyrocketed with the front end of the curve underperforming. Net daily changes vary between 7 bps (30-yr) to 15 bps (2-yr). German Bund yields more or less rose by halve the US gains to trade 3.8-8.9 bps higher in similar flattening. Oil prices extend their recent ascent to $78 (Brent) and are in any case not hindering the rise in yields. The dollar tops the FX scoreboard. EUR/USD loses the 1.10 support area to trade at the lowest since mid-August (1.097). DXY pierces through parallel resistance of 102.16-102.36 towards 102.58. USD/JPY (148.55) closes in on the August correction high of 149.35/39. Sterling pared some of the steep losses yesterday after Bank of England chief economist Pill pushed back against Bailey’s plea for a more aggressive stance. He supports a gradual withdrawal of policy restriction and said the central bank needs to guard against the risk of cutting too far or too fast. EUR/GBP eases from 0.84+ to 0.838. The pound is no match for USD of course. GBP/USD slips further to 1.308. UK yields gapped higher at the open and joined the US move higher to add 12 bps at the front.
News & Views
The European Commission announced that a proposal to impose definitive countervailing duties on imports of battery electric vehicles from China has obtained the necessary support from EU Member States for the adoption of tariffs. The vote represents another step towards concluding the EC’s anti-subsidy investigation and results in the EC imposing additional levies of between 7.8% and 35.3% on top of an existing duty of 10%. According to people familiar with the procedure, 10 members states (including France and Italy) voted in favour of the proposal. 12 countries (including Spain, Belgium and the Czech Republic) abstained. 5 members (including Germany, Hungary and Slovakia) are said to have voted against. The EU decision likely will cause retaliation from China as it already started investigations on European dairy products and pork, amongst others. Still the EU indicated that it continues to work hard to explore an alternative solution.
After a protracted decline (-27%) between March 2022 and February this year, the food price index of the Food and Agriculture Organization of the United Nations (FAO) in September showed an acceleration in prices. The index was up 3.0% from August, marking the largest month-on-month increase since March 2022. Prices for all five commodity categories strengthened, with monthly increases ranging from 0.4% for the meat price index to 10.4% for sugar. The FFPI in September was 2.1% higher than a year ago but 22.4 % below its peak reached in March 2022. Cereal prices were up 3.3% M/M but still 10.2% lower compared to September last year. A monthly rise in wheat prices was mainly due to concerns over unfavourable weather conditions in some key exporters (Canada, European Union). Maize prices also increased M/M. Vegetable oil prices reached the highest level since early 2023 due to a continued rise in the prices across palm, soy, sunflower and rapeseed oils. Dairy prices were up 4.6% M/M and 21.7 Y/Y, driven by higher prices across all dairy products. Sugar prices jumped a sharp 10.4%.
Graphs
US 2-yr yield soars after September payrolls blew past every (even most optimistic) estimate
DXY: trade-weighted dollar index takes out first resistance, solidifying the recent bottoming out process
S&P500 gaps higher. Equities bank on the soft (or no) landing narrative instead of fearing a slower return to less restrictive policy
CBR commodity index leaves recent lows further behind, driven by an uptick in soft commodity prices along with the likes of oil and iron
 to upward revisions in previous reports. Starting with the job gains, they were a much bigger than expected 254k. That compares to the 150k median estimate and even crushed the most optimistic one of 220k. It coincided with a +72k revision of the previous two months.){kind=link}