Asia Morning Bites

Blowout headline US payroll data, but markets' response was measured. China returns from its holiday and oil prices surge on Hamas attack

Robert Carnell

Regional Head of Research, Asia-Pacific

In this article

Global Macro and Markets What to look out for: Oil price moves and China new loans

Global Macro and Markets

Global markets: Friday’s apparent blowout payrolls release has given bond yields another push higher. The yield on the 10Y Treasury has risen 8bp to 4.80%, though it briefly got as high as 4.885% on Friday. 2Y yields rose 6.3bp to 5.081%. Oddly, financial markets don’t seem to be translating this into a higher probability of a November or subsequent rate hike. The implied yield on the October Fed funds contract is 5.3275%. This rises to only 5.375% in November, and 5.4% in December, peaking at 5.41% in January 2024 before it begins to head down again. In contrast, more of the economics forecasting community seems to be swinging behind a November hike after the payroll figures, so there’s clearly an active debate opening up with some viewing the details of the labour report as less encouraging. There was a brief USD rally on the payrolls report, but it quickly faded, and EURUSD is now 1.0564, about the same as it was pre-payrolls. The AUD is also about the same at 0.6365 and so too is Cable at 1.2219. The JPY is at the lower end of 149 after coming close to 149.60 on Friday. Asian FX is a mixed bag, though there were no big movers. The MYR and TWD both made small gains on Friday, though the THB was again weak. Equities were lifted by the combination of apparently stronger employment demand combined with a nuanced view on the prospects of further Fed tightening. The S&P 500 rose 1.18% while the NASDAQ put on 1.6%. China returns from the long autumn holidays today. Korea and Taiwan are both out. Today, markets will also have to weigh up the impact of the Hamas attack on Israel over the weekend, which has led to a spike in oil prices. Front-month Brent crude is now $87.66/bbl, up from about $84.49/bbl on Friday. While this is clearly inflationary, the main response may be a simpler risk-off reaction.
G-7 macro: James Knightley’s note on the latest US labour report concedes that the headline figure increases the risk of a 5% 10Y UST yield, and also of further rate hikes, though our base case remains for no-change at the November meeting. The headline payroll figure was +336K, and there were sizeable upward revisions to prior months’ data too. But it wasn’t all good. Average hours worked were flat on the previous month, and the average hourly earnings growth rate slowed a little to 4.2% from 4.3% (0.2%MoM). The unemployment rate remained unchanged at 3.8%, and the household survey of employment showed a much smaller increase of only 86,000 jobs and a rise in unemployment of 5,000. September CPI later this week may raise concern about Fed policy again, as it could come in a bit hotter than recently. But for now, and for all the talk of bond market vigilantes, markets seem to be taking a balanced view of the data rather than stampeding in only one direction.

What to look out for: Oil price moves and China new loans

China new Yuan loans (9 October)
Australia Westpac consumer confidence (10 October)
Japan trade balance Bop (10 October)
Philippines trade (10 October)
US wholesale inventories (10 October)
South Korea current account balance (11 October)
Japan machine tool orders (11 October)
Taiwan trade (11 October)
US PPI and FOMC minutes (11 October)
Japan PPI and core machine orders (12 October)
India CPI inflation (12 October)
US CPI inflation and initial jobless claims (12 October)
South Korea unemployment (13 October)
China CPI inflation (13 October)
Singapore GDP and MAS (13 October)
US University of Michigan sentiment (13 October)

Author

Robert Carnell

Regional Head of Research, Asia-Pacific

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