Friday, October 7, 2022

Daily Market Overview

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• The US labour market hums along. Companies in September added 263k jobs. The biggest contributing sectors were education & health (+90k), leisure & hospitality (+83k) and professional business services (+46k). Some point at seasonal effects distorting the reading in a negative way and said that removing these, pushes up the actual job growth by some 30k higher. The unemployment rate fell from 3.7% back to 3.5% again – matching the five-decade low seen in July. This came on the back of a marginally declining participation rate though. That labour market metric rose unusually strong in August to 62.4% but eased a bit last month to 62.3%. The pre-pandemic multi-year average of around 62.8% thus remains some way off. Fewer people available for work helps explain why wages keep rising the way they do. Pay growth shows no signs of slowing down materially so far, coming in at 0.3% m/m and 5% y/y (5.2% in August). The payrolls follow a mixed bag of US data earlier this week. The US manufacturing ISM on Monday and a sharp setback in the JOLT reports on Wednesday shaped expectations (hopes, rather) for the Fed to take it down a notch. A strong US non-manufacturing ISM yesterday followed by the numbers today tells it’s much too premature for such a conclusion. It is also what an avalanche of Fed speeches, from Mester over Cooke to Bostic and Waller, suggested all week. US CPI is due next week but it’s already clear: a 75 bps hike at next month’s Fed policy meeting is a done deal and more tightening is to come. The remaining doubters in the market are forced (once again) to put the idea off the table. US yields were already rising going into the payrolls release and add to that momentum afterwards. Changes range between 4.2 bps (2y) to 6.8 bps (30y). These may be small moves compared to what we’re used to but we’ve been spoiled these last few months. We do note that the likes of the 2y yield (4.3%) intraday tested the previous cycle high at 4.34%. But a break higher may be tricky given the long weekend for bond markets (Columbus Day on Monday). The downleg in US Treasuries pulls German Bunds in its slipstream. Yields in Germany rise 6.3 to 10.2 bps in a steepener. The European swap curve steepens in similar fashion. Stock markets react as one could have expected. European equities drop 0.9%, Wall Street opens between 1-1.7% lower.

• The dollar advances marginally. EUR/USD loses the 0.98 big figure going into the weekend (0.976 at the time of writing). The trade-weighted index ekes out a slight gain to 112.37. USD/JPY is on track for a close above 145 for a second day straight. Japanese authorities are probably digging up reserves as we speak. Keeping monetary policy extremely easy may cost a thing or two. Sterling is going nowhere. EUR/GBP holds steady just south of 0.88.
News Headlines

• The FAO food price index in September declined for a sixth consecutive month. Prices eased 1.1%. Still, the FFPI remained 5.5% above its value in the corresponding month last year. The decline was driven by a sharp fall in vegetable oils (-8.6% M/M) and moderate decreases in those of sugar, meat and dairy products, more than offsetting a rebound in the cereal price sub-index. The cereal price index rose 1.5% M/M to be up 11.2% Y/Y as wheat prices rebounded, underpinned by heightened uncertainty about Ukraine exports and concerns regarding dry conditions in Argentina and the US.

• After declining three months in a row, Canadian employment again rose by a net 21 000 jobs in September. The outcome was close the expectations. Gains were mainly in part-time employment. The unemployment rate dropped from 5.4% to 5.2%. However, this decline was mainly the result of fewer people looking for a job as the labour force became smaller. The participation rate continues its declining trend, easing from 64.8% to 64.7%. Wage growth for permanent employees slowed to 5.2% Y/Y from 5.6% Y/Y, the fourth consecutive 5.0% + reading. The report probably won’t change the policy assessment of the Bank of Canada. The loonie gains marginally with USD/CAD easing to 1.371. However the cycle peak of 1.3838 reached late last week stays within reach on broad USD strength.

Graphs & Table

US 2y yield tests previous cycle high after payrolls report dampens market hopes for a Fed slowdown.

USD/CAD: loonie enjoys better bid after first employment rise in three months but fights against overall strong USD.

Oil (Brent) extends its recent rebound after OPEC cut in output. Resistance of downward sloping trendline got obliterated.

FAO food price index: decline runs for a sixth month though prices remain elevated in a longer-term perspective.

Note: All times and dates are CET. More reports are available at which you may sign up to.

This document has been prepared by the KBC Economics Markets desk and has not been produced by the Research department. The desk consists of Mathias Van der Jeugt, Peter Wuyts and Mathias Janssens, analists at KBC Bank N.V., which is regulated by the Financial Services and Markets Authority (FSMA). Read the full disclaimer.

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