US initial jobless claims at lowest level since January

There was further evidence of the continued strength of the US labour market in the initial jobless claims for the week ending 14 October. Initial claims fell to 198K from 211k the week prior, leaving the measure at its their lowest level since January of this year and well below expectations of 210K. While there doesn’t appear to be signs of large job losses in the most recent data, there was some marginal evidence that those who have lost jobs are finding it harder to find new ones, with continuing claims for unemployment benefits rising in the week ending 7 October.

The US conference board leading index declined 0.7% m/m in September, after falling 0.5% in August. Of the ten components that make up the leading index, nine were either flat or negative in September. The only positive contribution to the aggregate index came from fewer jobless claims in September. While the current value of the index isn’t consistent with a recession, it could signal the risk of weaker economic activity going forward.

The Bank of Japan’s preferred measure of inflation – CPI excluding fresh food – rose 2.8% y/y in September. Although the print was marginally higher than consensus expectations of a 2.7% rise, it was a deceleration from the 3.1% y/y growth recorded in August. The main contributor to the slowdown from August was gas and utility prices. The latest data adds credence to the BOJ’s view that inflationary pressures are reaching their peak, although upside risks to the inflation outlook remain given recent Yen weakness.

Today’s Economic Data and Events

• 10:00 UK Retail sales, Sept. Forecast: -0.4%

Fixed Income

• US Treasuries closed mixed overnight as Fed Chair Jerome Powell left open the possibility of further tightening in monetary policy but also seemed to rule out hiking at the FOMC meeting at the end of the month. Yields on the 2yr UST fell 6bps to 5.1585% while the 10yr yield rose almost 8bps to 4.9898%. Chair Powell indicated that he did not think “policy is too tight right now” and signs of “persistently above-trend growth…could warrant further tightening of monetary policy.”
• European bond markets closed a little more quietly after bigger moves earlier in the week. Bund yields added less than 1bps to 2.927% while gilt yields added almost 2bps to 4.67%. Emerging market Eurobonds closed generally softer overnight with the Bloomberg index down 0.4%.

FX

• The dollar was broadly weaker against major peers overnight, losing ground as Fed Chair Jerome Powell seemed to rule out a hike at the next FOMC. EURUSD added 0.4% to 1.0582 while GBPUSD closed near flat at 1.2144. USDJPY also moved in favour of the yen, down 0.1% to 1.49.80.
• Commodity currencies closed weaker with AUDUSD down 0.1% at 0.6329 while NZDUSD fell 0.1% to 0.5849. USDCAD closed near flat at 1.3719.

Equities

• Stock markets had a third day of selling as concerns around tight monetary policy combined with geopolitical tensions to prompt risk-off sentiment. In the US, the interest rate sensitive NASDAQ was the biggest loser as it dropped 1.0%, but the Dow Jones (0.8%) and the S&P 500 (0.9%) were also under pressure.
• In Europe, the CAC dropped just 0.3% but the DAX lost 0.6% and the FTSE 100 closed down 1.2%.
• Locally, the ADX closed 0.6% lower while the DFM ended the day down 1.9%. In Saudi Arabia the Tadawul dropped 0.6%.

Commodities

• Oil prices were bid higher overnight with Brent adding about 1% to USD 92.38/b and WTI gaining about 1.2% to USD 89.37/b as markets respond to a seeming widening of the regional tensions. Comments from Fed Chair Jerome Powell that the US may not need to hike at the upcoming meeting could also help to improve the near-term oil outlook.
• Gold prices rallied a third day running, adding 1.4% on spot prices to close at USD 1,974/troy oz as the metal receives a haven bid. Silver and palladium prices also ticked higher. Copper and aluminium forwards both edged higher overnight while iron ore futures added 0.6% to USD 119.09/tonne.