US data shows signs of softening labour market

• US JOLTS data showed that job openings fell by a bigger than expected 10% m/m to 10.1mn in August, the lowest level since June 2021.  This may be an indication that the labour market is finally showing signs of softening following an aggressive pace of rate hikes by the Fed since March. Nevertheless, the level of job openings is still at a high level relative to the series history, with 1.7 job openings for every unemployed person in the US. The “quit rate” was unchanged at 2.7% suggesting that workers are still voluntarily leaving their jobs at a high rate, confident that they can secure new work. 
• New factory orders in the US were largely unchanged month-on-month in August, in-line with analysts’ expectations, after falling -1% in July. Orders for durable goods fell for the second consecutive month, declining -0.2% in August. The relatively small change in the headline durables number however hides larger swings in the transport and defense sub-components. Transport equipment was largely responsible for the fall in durable orders on the month, with that sub-component falling -1.1%.  
• Japan’s services PMI data improved in September, rising to 52.2 from 51.9 in August, bringing the composite index up to 51.0, a three-month high. The services sector will benefit from the reopening of Japan’s borders for tourists, and we expect to see this indicator rise further in the coming months.
• Saudi Arabia’s PMI came in at 56.6 in September, and while that is a slowdown from the previous month, it still points to a robust expansion rate. Both total new orders and export orders remained high in September even as they came in slower than seen over the previous two months, which should support output over the next quarter.
• Saudi Arabia has won the bid to host the 2029 Asian Winter Games at Neom. The games will be held at the Trojena mountain resort which is due to be completed in 2026.
• Egypt’s PMI was unchanged in September, coming in at a contractionary 47.6 for the second month running. Egypt’s PMI has remained below the neutral 50-level since December 2020, although it should be noted that the Central Bank of Egypt maintains that real GDP growth (preliminary 6.6% y/y in the year ended in June) has of late been driven by the private sector.

Today’s Economic Data and Events

• 08:30 UAE PMI (Sep)
• 12:00 Eurozone services PMI (Sep) forecast 48.9
• 16:10 US ADP employment change (Sep) forecast 200k
• 17:45 US services PMI (Sep) forecast 49.2
• 18:00 US ISM services index (Sep) forecast 56.0

Fixed Income

• US Treasuries initially pulled higher on the day as markets priced in more central bank pivoting following the RBA’s smaller than expected 25bps hike. The 2yr UST yield fell below 4% briefly before giving up its gains and closing around 4.1% overnight. The 10yr UST managed to hold its gains a little better, with yields dipping to nearly 3.55% before rising to around 3.62% on the close.
• European markets were generally stronger with the 10yr bund yield down 5bps to 1.862% while 10yr gilts rallied as markets expect a further reversal in the government’s tax cut plans. Yields on 10yr UK government bonds fell 9bps to 3.859%.
• Emerging market bonds were mixed overnight with South African 10yr yields down7bps to 11.08% while Indian 10yr yields fell 11bps to 7.362%.

FX

• The dollar was offered against peer currencies overnight with the broad DXY index down by 1.5% to 110.065, its lowest level since the middle of September. EURUSD pulled higher by 1.6% to 0.9986 while USDJPY dropped by 0.3% to 144.13. GBPUSD also had a second day running of strong gains, up by 1.35% to 1.1476
• Commodity currencies were mixed with USDCAD moving in favour of the loonie, down by 0.8% while AUDUSD fell by 0.2% as markets were left disappointed by the smaller than expected hike by the RBA. AUDUSD closed at 0.6501.

Equities

• Further strong gains for US equities resulted in the best two day rally for two years. Risk-on sentiment has been bolstered by the supposition that weak data last week will deter the Fed from hiking as aggressively as had been previously supposed. The Dow Jones, S&P 500 and the NASDAQ added 2.8%, 3.1% and 3.3% respectively, with the latter also boosted by the news that Elon Musk’s Twitter deal was back on track.
• European markets also had a strong session as the STOXX 600 ended the day 3.1% higher. The CAC added 4.2% while the FTSE 100 gained 2.6%.
• Locally, the DFM gained 1.8% while the ADX and the Tadawul both gained 1.5%.

Commodities

• Oil prices rallied strongly in anticipation of a large production cut from OPEC+ from today’s meeting. Brent futures moved back up above USD 90/b, gaining 3.3% overnight while WTI added almost 3.5% to USD 86.52/b.
• OPEC+ may potentially cut as much as 2m b/d which would be a material change in production levels, unwinding much of the past months’ of additions. There is also the risk that individual countries would cut even more to offset other members failing to fully participate in any cut mechanism.

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