Strong US jobs data ahead of FOMC rate decision

• In the US, the ISM manufacturing survey for October was positive, coming in above the neutral 50.0 level, but at 50.2 the expansion was marginal, and marked a slowdown from the 50.9 recorded in September. In a positive for the Fed, the prices paid component fell to just 46.6, down from 51.7 the previous month and far short of the projected 53.0, suggesting that disinflation is potentially coming in to play.  However, the data out of the US has generally been strong to date – the final October S&P Global manufacturing PMI was revised up from the initial print yesterday, from 49.9 to 50.4, and the JOLTS job openings print for September released yesterday came in at 10.7mn, which will likely continue to put upwards pressure on wages – consensus projection had expected 9.8mn. The FOMC is due to announce its latest rates decision later today, with a fourth consecutive 75bps hike looking the most likely outcome. This would take the upper bound of the target range to 4.0%. The statement and press conference will be closely followed for any indication from the bank around a slowdown in its hiking cycle.
• The UAE and the US have signed on a deal for a strategic partnership which will invest USD 100bn in clean energy projects with the aim of producing 100gigawatts by 2035. A group will be established to identify projects and will support civil nuclear cooperation between the two parties.
• The UK’s S&P Global/CIPS manufacturing PMI index for October was revised up modestly on its final reading, from 45.8 to 46.2. Nevertheless, this was still the lowest reading since May 2020 at the peak of the pandemic crisis, underscoring the pressures the UK economy is under from cost of living crisis. The employment subindex showed that firms were cutting jobs for the first time in nearly two years.

Today’s Economic Data and Events

• 19:00 JP Morgan global manufacturing PMI, October. Forecast: 49.8
• 22:00 US FOMC rate decision. Forecast: 4.00%

Fixed Income

• US Treasuries slipped at the start of the week and in the lead up to the November FOMC meeting. Yields on the 2yr UST added almost 7bps to close at 4.4824% overnight while the 10yr yield gained 3bps to 4.0478%. A 75bps hike looks a near certainty as to the outcome of this week’s meeting.
• European bonds drifted lower after eurozone inflation came in hotter than expected for October. The 10yr bund yield added 4bps to 2.136% while the similar maturity French 10yr added 6bps to 2.67% and Italian yields added nearly 13bps to 4.286%. Several ECB officials gave competing views overnight in terms of next steps for the bank with Iganizo Visco, head of the Italian central bank, saying that the rate hiking cycle “can’t be predetermined” while Paolo de Cos from Spain’s central bank said “decisive action” will help support the economy in the medium term.
• Credit markets generally settled lower overnight with emerging market bonds largely sinking. A broad index of USD-denominated bonds fell 0.3% overnight though spreads did come in marginally.

FX

• The dollar strengthened ahead of the start of this week’s FOMC, abetted by a move higher in yields. Losses against the dollar were consistent with EURUSD off by 0.8% to 0.9882 and GBPUSD giving up more than 1.2% to settle at 1.1469. USDJPY also moved higher for a second day running, adding 0.75% to 148.71.
• Commodity currencies fared a little better. USDCAD still moved against the loonie though by just 0.2% to 1.3624. AUDUSD also fell, down 0.19% to 0.6399 while NZDUSD edged slightly higher.

Equities

• The surprise rise in job openings weighed on US equities towards the end of a volatile session yesterday, and by the end of the day all three benchmark indices closed down. The Dow Jones, the S&P 500 and the NASDAQ dropped -0.2%, -0.4% and -0.9% respectively.
• There had been more positivity earlier in the day in Europe, where the FTSE 100 added 1.3% and the CAC 1.0%.
• Locally, the DFM lost -0.1% and the ADX closed flat.

Commodities

• Oil prices dropped overnight with no substantial catalyst to shift markets. Brent futures settled at USD 94.83/b, down 0.98% while WTI gave up 1.6% at USD 86.53/b. Comments from ADIPEC will continue to hit the headlines in coming days with OPEC’s secretary-general saying that a “surplus” in oil markets was responsible for the group’s decision to cut output for November onward.

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Fixed Income

• US Treasury markets showed some choppy action ahead of today’s FOMC announcement. After initially gaining on the day, with 10yr UST yields moving to as low as 3.92%, a better than expected JOLTS report for September and a relative outperformance on the ISM manufacturing release helped to push yields higher into the end of the session. The 2yr UST yield closed up 6bps at 4.5447% while the 10yr UST yield closed the day unchanged at 4.0419% despite those wide intraday moves. Markets are likely to trade sideways today until the release of the FOMC decision this evening UAE time.
• Bunds traded in around a 10bps round trip, gaining earlier in the session before selling off. Yields on the 10yr bund closed at 2.126%, down 1bps. Gilt yields also settled lower at 3.459%, down almost 4bps.
• Risk assets generally moved higher, including high-yield and emerging market bonds. Yields on the 10yr South African bonds dropped 7bps to 11.247% though Turkish 10yrs weakened with yields up 18bps to 11.04%.

FX

• Early gains against the dollar were unwound for major currency pairs following the pop higher in UST yields toward the evening session. EURUSD settled marginally lower at 0.9877 after getting up near 0.995 at one point. The moves were similar in GBPUSD, rallying up to 1.1550 before fading. However, sterling managed to hold its moves better and ended the day at 1.1484, up 0.13%. USDJPY ultimately ended the day stronger though it too endured some wide moves. The pair closed down 0.3% at 148.27.

Equities

• The surprise rise in job openings weighed on US equities towards the end of a volatile session yesterday, and by the end of the day all three benchmark indices closed down. The Dow Jones, the S&P 500 and the NASDAQ dropped -0.2%, -0.4% and -0.9% respectively.
• There had been more positivity earlier in the day in Europe, where the FTSE 100 added 1.3% and the CAC 1.0%.
• Locally, the DFM lost -0.1% and the ADX closed flat.

Commodities

• Oil prices settled mixed with WTI up 2% at USD 88.37/b and Brent futures dipped slightly by 0.19% to USD 94.65/b. Both contracts are pushing higher by around 1% in early trade today. The API reported a draw in US crude inventories of about 6.5m bbl last week with official numbers from the EIA out later this evening.
• Market surveys of OPEC production showed an increase in collective output of 30k b/d in October as higher production from the UAE, Iraq and Nigeria helped to offset small declines from Saudi Arabia and others.