US payrolls data in focus today

• Market focus today will be squarely on the US non-farm payrolls data for September, with Bloomberg consensus for a 255k gain in jobs and the unemployment rate expected to remain unchanged at 3.7%. Evidence of a softening in the US jobs market remains mixed, despite the initial jobless claims rising sharply in week ending 1 October. The number of people filing for unemployment benefits for the first time in the last week of September increased to 219K, from 190K the week prior. Although this rise was significantly higher than the 204K analysts had been expecting, it may in part be an unwinding of the previous week’s very low claimant count, which was at a 5-month low. The 4-week moving average of jobless claims was broadly unchanged and remains at historically low levels.
• Several Fed official pushed back against expectations of a “pivot” in the near term, with Neel Kashkari saying the Fed was “quite a ways away” from pausing rate hikes; sentiments which were echoed by other Fed speakers as well yesterday. 
• Minutes from the September ECB meeting showed that some policymakers preferred a smaller 50bp hike in their deliberations, despite finally agreeing to a 75bp move.  While there was no agreement to signal a hike of similar magnitude at future meetings, several ECB officials have indicated their preference for another 75bp hike this month as well, and the market is largely pricing this in, despite weakening growth in the Eurozone.
• German factory orders data came in significantly lower than expected in August, down -2.4% m/m, while economists polled by Reuters had originally expected a fall of -0.7%. The series does however exhibit a fair degree of volatility, with July data being revised up from -1.1% to +1.9%.

 Today’s Economic Data and Events

• 10:00 Germany industrial production (Aug) forecast -0.5% m/m
• 16:30 US non-farm payrolls forecast 255k

Fixed Income

• US Treasury yields extended their moves higher as officials from the Federal Reserve kept up the hawkish rhetoric. Christopher Waller, an FOMC governor, said that the “focus of monetary policy needs to be fighting inflation” and that other tools should deal with financial stability issue. Loretta Mester, from the Cleveland Fed, said there was no evidence the Fed “could start reducing the pace” at which they are currently hiking while new governor Lisa Cook and regional Fed presidents Charles Evans and Neel Kaskhari all pushed back against market hopes for an early pivot in tightening.
• The 2yr UST yield added almost 11bps overnight to settle at 4.2558% while the 10yr yield gained 7bps to close at 3.8236%. Markets still look to be pricing a peak in rates by about Q2 next year before they move tentatively lower into the end of 2023.
• Gilt yields led European markets higher as markets grow anxious as to what happens once the Bank of England’s emergency intervention stops next week. Yields added 13bps to 4.154% while in bund markets, the 10yr yield added 5bps to 2.079% and French 10yr yields added 4bps to 2.677%.
• FAB priced a USD 700m 5yr green bond at T+125bps, the second sustainable issuance from the region after PIF launched a three-tranche issue this week.
• Moody’s changed their outlook on Oman’s sovereign rating to positive from stable and affirmed the rating at Ba3.

FX

• Sterling led currency markets lower with a drop of 1.45% overnight to 1.1162. While there has been a bounce from hitting historic lows, the outlook for GBPUSD still looks negative given the headwinds facing the economy and the uncertainty around policy credibility. EURUSD dropped by 0.9% to 0.9791 while USDJPY broke above the 145 level, rising by 0.35%.
• Commodity currencies were weaker as a rule with USDCAD up by 0.9% to 1.3748, AUDUSD dropping by 1.3% to 0.6406 and NZDUSD down by 1.4% to 0.5661.

Equities

• US equities recorded a second day of losses as the risk-on mood seen at the start of the week steadily withered in the face of push-back from Fed officials on the chances of a pivot. The NASDAQ, the S&P 500 and the Dow Jones dropped -0.7%, -1.0% and -1.2% respectively. There had been losses in Europe earlier in the day also, where both the CAC and the FTSE 100 dropped -0.8% and the DAX lost -0.4%.
• Locally, the losses were shallower but the benchmark indices closed lower nonetheless. The ADX, the DFM and the Tadawul all ended the day -0.1% lower. Egypt’s EGX 30 added 0.8% however, while Turkey’s Borsa 100 gained 2.0%.

Commodities

• Oil prices extended gains overnight with Brent futures up by 1% to USD 94.42/b and WTI adding almost 0.8% to USD 88.45/b. Markets are still adjusting to OPEC+’s move to step in an cut output by 2m b/d.

• American legislators will likely continue to threaten use of the NOPEC bill, where individual countries could be sued for participating in cartel behaviour. But how this applies in practice is highly uncertain and may remain more of a paper tiger than a genuine attempt to influence OPEC+ production decisions.

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