Markets Daily
Strong US payrolls data boosted bond yields though USD gains were unwound as equities rallied. AUD opened the week a little softer at 0.6360 as risk aversion rose on the Hamas attack on Israel. Today’s data calendar is quiet. It is a Japan holiday and partial US holiday but China finally reopens.
Friday
Markets were generally subdued with a quiet data calendar ahead of the US jobs report and China markets still closed. AUD/USD ticked up to 0.6382 then slipped to 0.6355, net -0.2% on the day. Regional equities were mostly slightly higher, the ASX 200 typical, +0.4%. The RBA Financial Stability Review summed up its view that “Global financial stability risks are elevated due to challenging macroeconomic conditions, but the Australian financial system remains strong.” The RBA said that “Lenders in the Bank’s liaison program have reported that borrowers have been more resilient than expected in their ability to service their debt, given the sharp rise in interest rates.”
Currencies/Macro
The US dollar bounced sharply in response to payrolls data Friday but then shed gains as equities rallied. In apparent response to the weekend massive attack by Hamas on Israel, the JPY and USD firmed slightly at today’s open. EUR/USD dipped to 1.0483, recovered to 1.0590 into the weekend but started the week nearer 1.0560, net unchanged. GBP/USD followed the same pattern, trading a 1.2106 to 1.2261 range Friday then dipping to 1.2205 early Monday, net up a fraction.
USD/JPY followed US yields higher Friday, closing at 149.32, but eased back to 149.10 early Monday. AUD/USD slipped from 0.6360 to 0.6313 on the jobs headlines, rallied back to close Friday at 0.6386, then dipped to 0.6360 early Monday. NZD/USD is net unchanged at 0.5970. AUD/NZD fell 20 pips to 1.0660, probing four-month lows.
US non-farm payrolls in September rose 336k (est. 170k, prior revised to 227k from 187k, with two-month revisions totalling +119k), indicating a strong labour market. Hospitality and health sectors led the gains. The separate household survey was mixed, with the unemployment rate remaining at 3.8% (est. 3.7%) despite the participation rate remaining unchanged, although the underemployment rate did fall to 7.0% (prior 7.1%). Average hourly earnings rose +0.2%m/m and 4.2%y/y (est. +0.3%m/m and 4.3%y/y, prior 4.3%y/y), a touch below consensus.
The United Auto Workers union won a landmark concession from General Motors to bring battery plant workers into the union’s fold, averting an expansion of strike action.
Canadian employment in September rose 63.8k (est. 20k), keeping the unemployment rate at 5.5% (est. 5.6%), with participation rising to 65.6% (est. 65.6%, prior 65.5%), and wages rising 5.4% (est. 5.2%, prior 5.2%).
Interest rates
US 2yr treasury yields rose from 5.03% to 5.08% via 5.14%, while 10yr yields rose from 4.72% to 4.80% via 4.89%. Markets are pricing the Fed funds rate, currently 5.375% (mid), to be 9bp higher at the next meeting on 1 November, with a 55% chance of a hike in December.
Australian 3yr government bond yields (futures) rose from 4.00% to 4.02% via 4.09%, while the 10yr yield rose from 4.56% to 4.59% via 4.66%. Markets are pricing the RBA cash rate, currently at 4.10%, to be 6bp higher on 7 November, with a 65% chance of a hike by March. New Zealand rates markets are pricing the OCR, currently at 5.50%, to be 11bp higher on 29 November, with a 90% chance of a hike by April 2024.
The shift in sentiment was seen in credit spreads with EUR cash well wider post the US payrolls print, however Main recovered from its early weakness to close 2.5bp better at 85.5, recording a 5bp range on the day. CDX likewise was in 3bp to 75 after touching a high of 81 early in the session and US cash put in a solid performance to be 1-3bp better across the various sectors to show some consolidation, but remains at levels not seen since June. Primary activity was largely absent as expected.
Commodities
Crude managed a small bounce Friday, helped by the post NFP risk-on recovery though still saw its largest weekly drop since March as rate fears and demand destruction weighed on sentiment. The November WTI contract closed up 48c at $82.79 while the December Brent contract closed up 51c at $84.58 though WTI closed the week down 8.8% and Brent down 11%. Barclays argued the correction in crude “has been too rapid and unwarranted” and Goldman noted that “while a significant recovery in crude prices likely requires a recovery in gasoline margins, some stabilisation in financial conditions and evidence of stock draws, we expect all three drivers to play out”, forecasting crude will rise to $100 by the spring. Rystad is forecasting the pace of increase in US crude production to slow sharply in 2024 with 500kbpd added next year versus 900kbpd this year. Rystad expects Brent to average $85 to $90 through to the end of 2024. Traders will be nervously watching prices when trading opens today after the shocking events in the Middle East. However, UAE, Kuwait and Saudi ministers confirmed the need to support the oil market. The UAE energy minister said, “we do not engage in politics; we govern by supply and demand, and we do not consider what each country has done”. Australia and Japan pledged deeper co-operation on energy security and climate change during high level talks over the weekend between the Japanese Minister for Economy and Trade Yasutoshi Nishimura and Australian Trade Minister Don Farrell plus Energy Minister Chris Bowen and Resources Minister Madeleine King. Meanwhile workers at Chevron LNG facilities in Australia were reported as planning to resume strikes. Unions will file a new 7-day notice today for strikes, though Chevron noted that it was “meaningfully engaged”.
Metals jumped Friday on the risk-on move with copper leading the bounce, vaulting back above $8,000 with the 3-month LME contract closing up 1.85% at $8,045. However, gains elsewhere were more muted with zinc up 0.9% to $2,499 and aluminium up 0.45% to $2,242. There was little fresh news though Bloomberg noted that metals traders were enduring one of their toughest periods in years ahead of LME week which kicked off Sunday. The FT noted that automakers including Ford plus miners including Brazil’s Vale and China’s Tsingshan are invested in Indonesian nickel projects responsible for the clearance of large swathes of some of the world’s most biodiverse forests.
Chinese traders return from the Golden Week holidays today with the SGX iron ore contract down circa $5 from levels this time last week. The November SGX contract is up 25c over the weekend at $115.00 while the Mysteel index is down $1.95 over the week to $118.30. Wires reported Friday that the China Mineral Resources Group is negotiating with Rio and other leading miners over next year’s supply. The group is said to be seeking “preferential terms on transport, grades and delivery arrangements” with Baowu Steel and Ansteel said to have handed negotiations around long-term supply contracts over to CMRG. China will report trade data for September including iron ore imports on Friday.
Day ahead
Japanese markets are closed for a holiday (Sports Day). Korea and Taiwan are also closed but China markets reopen for the first session since 28 September.
Eurozone Sentix investor confidence is expected to weaken further from –21.5 to –24.0, pessimism on the economic outlook keeping confidence low.
US money and bond markets are closed for the Columbus Day holiday but the NYSE is open. Canada is closed. Fedspeak will include Logan on monetary policy, Barr and Jefferson.
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