Markets
US payrolls and the Manufacturing ISM caused quite some intraday volatility on Friday but in the end didn’t change the broader market picture in any profound way. The US economy in October only added 12k jobs versus a 100k rise expected. However, the outcome was materially distorted by hurricanes and by a major strike (Boeing) which made it very difficult to draw conclusions on the underlying trends/strength of the US labour market. The unemployment rate remain low at 4.1%. Average early earnings (0.4% M/M, 4.0% Y/Y) were marginally stronger than expected. In a first Pavlov reaction, US yields and the dollar nosedived, but soon reversed (more than) the initial decline. This reversal also shouldn’t have been triggered by a mediocre/mixed manufacturing ISM (46.5 from 47.2). The prices paid index jumped to 54.8 from 48.3, but this might also have been a one-off due to temporary supply disruptions. In the end, Friday’s data didn’t change markets’ assessment that everything is in place for the Fed to slow the pace of easing to 25 bps at this week’s meeting. The long end of the curve continues to suffer from fiscal uncertainty going in the US elections. US yields in the end added between 3.5 bps (2-y) and 10.3 bps (30-y). After better growth data and slightly higher than expected inflation published earlier last week, the German yield curve (re)steepened slightly, changing between -3.4 bps (2-y) and +3.6 bps (30-y). The dollar rebounded against most majors (EUR/USD close 1.0834, DXY 104.28, USD/JPY 153.01), but this probably was mostly ‘conservative’ market positioning going into the weekend and looking forward to the outcome of US elections. US equities gained modest ground after the setback earlier last week (S&P 500 + 0.41%). Some kind of calm also returned to UK markets after the budget-induced volatility. Sterling regained part of last week’s losses. EUR/GBP dropped back from the 0.8440 area to close at 0.8386.
Asian markets this morning are taking a cautious, mostly positive start to the new trading week. US Treasuries gain and the dollar is ceding ground, probably on headlines referring to a poll that Kamala Harris might take the lead in the battleground state of Iowa. Even if this is the reason behind the move, it only can be considered as markets moving to a more neutral positioning as the outcome remains a very close call. This might also cause some further erratic market moves today and tomorrow. The downside in EUR/USD now looks a bit better protected with some additional breathing space versus the 1.0761/69 recent lows. However, the real evaluation will only be possible on Wednesday. Aside from the Fed policy decision on Thursday, several other central banks will also hold regular meetings including the RBA (Tuesday), the National Bank of Poland (Wednesday) and the BOE, the Riksbank, the Norges Bank and the Czech national bank on Thursday. We especially look out for the BoE assessment of the Budget and its potential impact on the pace of easing going forward.
News & Views
The OPEC+ cartel yesterday decided to delay the start its production cut reversal for a second time. The alliance in June announced that they would gradually restore in monthly tranches 2.2mn barrels a day of output halted since 2022. The process would have originally started in October by adding 180k b/d. Weak Chinese demand and higher US supplies triggered a delay to December which is now pushed to January amid the fragile economic outlook which dampened oil prices. OPEC+ will meet on December 1st to review the 2025 outlook. Brent crude prices gapped open higher this morning, rising from a $73/b close on Friday to $74.50.
Rating agency S&P raised the Turkish credit rating for a second time this year by one notch, from B+ to BB- (three notches below investment grade). That’s in line with Fitch (BB-, stable) and slightly better than Moody’s (B1; positive). S&P changed the outlook from positive to stable. The rating agency said that the risk of the sovereign preventing private-sector debtors from servicing foreign currency-denominated debt is diminished in light of steps taken by authorities to re-build previously depleted external buffers amid a gradual removal of financial sector regulations hampering foreign currency liquidity management. The stable outlook balances S&P’s expectation that the current economic team will persevere with tight monetary policy against the implementation risks associated with the government’s medium term program. The Turkish lire continues trading near all-time lows (EUR/TRY 37.50).
