NFP comes in below expectations for October

Some key labour market data points released on Friday have raised expectations that the major central banks have indeed come to the end of their hiking cycles after their decisions to hold rates steady at their meetings over the previous fortnight. In the US, the nonfarm payroll jobs report for October came in at 150,000, weaker than the predicted 180,000, although the 35,000 drop in manufacturing jobs would have been driven by the UAW strike, and expected to be reversed in the next reading. Meanwhile, the massive upside surprise we saw in September was revised down to 297,000, from the previous estimate of 336,000. In further indications of a softer labour market, the headline unemployment figure ticked up to a near two-year high of 3.9%, from 3.8% while the participation rate fell to 62.7%, from 62.8% previously. In other evidence of a softening US economy, the ISM services index fell to 52.8 in October, down from 53.6 in September and missing the predicted 53.0.

There were also indications of a softening labour market in the Eurozone as the September unemployment rate in the bloc ticked up to 6.5%, up from the record low of 6.4% in August. The number of unemployed people rose by 69,000 to a total of 11mn across the 20 countries. With economic indicators deteriorating and interest rates expected to remain high for the time being, the expectation is that the number of jobless will rise from here, with the ECB forecasting 6.7% by 2025. There was more weak data out of the Eurozone on Friday as France’s industrial production contracted 0.5% m/m in September, a weaker outcome than the consensus prediction of flat growth, and compared to a 0.1% contraction in August, revised from the initial print of a 0.3% fall. On an annual basis, production was down 0.1% y/y. Meanwhile, Germany’s exports declined 2.4% m/m, compared to a 0.1% gain in August and missing the predicted 2.0% contraction. Imports were down 1.7% m/m.

Turkey’s headline CPI inflation rate slowed modestly to 61.4% y/y in October, from 61.5% in September. This missed expectations of an acceleration to 62.5% but the expectation is that this is a brief respite, and that higher oil prices and potential lira weakness will see price growth pick up again through the close of the year. Indeed, on Thursday the CBRT revised up its inflation forecast to 65% at year-end, compared with its July projection of 58%. On a monthly basis, prices were up 3.4%, down from 4.8% the previous month. By contrast to the headline figure, core inflation for October accelerated, albeit modestly, rising to 69.8% from 68.9% in September. Meanwhile, PPI slowed to 39.4% y/y, from 47.4% in September.

Today’s key economic data and events

11:00 Germany factory orders, % m/m, September. Forecast: -2.0%

Fixed Income

• US treasuries rallied at the close of the week, with yields on the 10yr briefly falling below 4.5% for the first time in a month, before closing at 4.57%, down 9bps on Thursday and 26bps over the week. Yields on the two-year also fell on the back of the soft jobs report from the US, closing the week at 4.84%, down 15bps on the day and 16bps on the week.
• There were also gains in European treasury markets as the ECB and the BoE are also expected to now leave rates on hold. The 10yr Gilt fell 26bps over the week to 4.29%, while the 10yr German Bund yield declined 19bps to 2.64%.

FX

• The dollar lost ground against its basket of peers last week as expectations for no more hikes from the FOMC hardened. The DXY index fell 1.9% w/w to a one-month low for the index.
• The gains against the dollar were broad-based as the EUR rose to a one-month high of 1.0731, up 2.5% over the week, while GBP gained 2.5% to 1.2380. While JPY still closed 0.3% lower across the week it did regain some ground and came back within the 150 level to close at 149.39.

Equities

• Equity markets around the world posted their strongest week in a year as some concerns around geopolitical tensions eased, and the lower-than-predicted US jobs number raised expectations that the Fed is done with its rate hikes.
• Asian equity markets ended the week on the front foot as they followed Wall Street higher on Friday, with strong gains offsetting losses earlier in the week and leading to w/w gains. The Hang Seng ended Friday up 1.5% w/w, while the Shanghai Composite gained 0.4%. Japanese markets were closed on Friday but the Nikkei closed up 4.4% over the week as the yen lost ground.
• In the US, the S&P 500 added 0.9% on Friday and 5.9% over the week for its strongest week since November 2022. The Dow Jones gained 5.1% w/w and the NASDAQ 6.6%.
• Within the region, Saudi Arabia’s Tadawul ended up 4.3% w/w on Thursday, while the EGX30 closed down 2.7% but remains up 55.1% ytd. Locally, the ADX added 3.0% w/w while the DFM gained 3.8%.

Commodities

• Oil prices came off last week as fears around the conflict in Gaza turning into a wider regional confrontation eased, meaning that prices lost the risk premium that had driven them higher over recent weeks, while concerns around demand came to the fore once again.
• Brent futures fell 6.6% w/w to USD 84.89/b, while WTI fell 9.8% to USD 80.51/b, back around the levels seen at the start of October before the Hamas attack.