Markets Hopeful Ahead of U.S. Labor Market Data
November 4, 2022
Analysts are expecting the Labor Department’s October figures to show lessening jobs growth, a higher jobless rate, and some deceleration of wage inflation. Yield curve inversion is getting more attention. U.S. stock futures have risen more than 0.5% following sharp post-FOMC losses.
A second source of hope comes from China where expectations are mounting of a significant relaxation of Covid restrictions. Hong Kong’s Hang Seng stock market index leaped 5.4% today, and the Shanghai composite closed 2.4% higher. The Japanese Nikkei fell 1.7%, however, but Europe has picked up with gains of more than 1.5% in German, British, French and Italian share prices.
Ten-year sovereign debt yield increases amount to six basis points today in Spain, Italy, and France, five basis points in Germany and four bps in Great Britain.
Prices for WTI oil, Bitcoin and gold rose 3.2%, 1.7% and 1.4% overnight.
The weighted dollar index fell back 0.5%. The dollar also fell 0.5% against the euro and even more versus the Aussie dollar (1.5%), Canadian dollar (1.0%), and Swiss franc (0.6%). Dips of 0.2% and 0.3% occurred against the yen and sterling overnight.
Euroland’s service sector purchasing managers index printed below the 50 level of neutrality for a third straight time in October and at a 20-month low of 48.6. The depressed the composite PMI to a 23-month low of 47.3, including sub-50 readings of 45.1 in Germany (29-month low), 45.8 in Italy (22-month low), and 48.0 in Spain (a 9-month low). The region is in recession already, facing a winter energy shortage, and still battling very high inflation.
Producer prices in the euro area rose 1.6% on month and 41.9% on year in September including 12-month increases of 108.3% in energy and 14.5% collectively in all other items. Euroland’s PPI jumped 9.3% on average (not annualized) between the second and third quarters.
French industrial production dropped 0.8% in September, its second decline in three months. But production managed to post a year-on-year increase (1.8%) for the third time in four months.
German industrial orders plunged 4.0% in September on top of August’s 2.0% decline. Beginning with February when Russia first invaded Ukraine, orders of fallen on month in 7 of 8 months, and September’s level of factory orders was 10.8% below the year-earlier level.
Since touching a 26-month low of 48.9 in July, the British construction purchasing managers index has risen three straight times to a 5-month high of 53.2 in October. But demand fell last month for the first time in 22 months.
Japan’s composite and service sector purchasing manager indices improved to 4-month highs in October with readings of 51.8 and 53.2, respectively.
China experienced a record high current account surplus last quarter of $144 billion, nearly matching the first half amount. The January-September surplus of $310.4 billion compares with $198.9 billion a year earlier.
Filipino consumer price inflation of 7.7% in October was up from 6.9% in September, 4.6% in October 2021 and the highest it’s been in 154 months.
Retail sales in Singapore jumped 3.3% on month in September, the most in half a year, but their 12-month rate of increase of 11.2% was the smallest in six months.
Australian retail sales volume edged up just 0.2% in 3Q 2022 after a 1.4% advance in the second quarter, and the Australian construction purchasing managers index fell further in October to a 14-month low of 43.3 from 46.5 in September. The quarterly Monetary Policy Statement of the Reserve Bank of Australia released today depict a combination of slowing growth and persistently high inflation.
The Czech National Bank’s two-week repo rate was left unchanged at 7.0% at this month’s policy review but with a 5-2 vote that saw minority support for a 75-basis point increase. From a low of 0.25% in June 2021, the rate was raised 350 basis points over the remainder of last year and to 7.0% by mid-2022. That front-loading is unlikely to be sufficient, and more increases are expected.
In Mauritius where CPI inflation has climbed to 10.9% and is not projected below 5% next year, central bank officials raised their policy interest rate today by a full percentage point to 4.0%, almost matching the 125 basis points of increase engineered in three earlier moves this year. The rate had been cut by 150 basis points in 2020 and hadn’t been as high as 4% in slightly more than five years.
Labor market conditions in the interconnected U.S. and Canadian economies were tighter than expected last month. U.S. non-farm payroll jobs rose 261k in October, about 60k more than forecast and on top of a net 29k upward revision to jobs growth in August-September. The healthcare, social work, and professional services had particularly strong job gains, and manufacturing again topped expectations. Average hourly earnings growth accelerated to 0.4% on month and were 4.7% higher than a year earlier. The jobless rate returned to August’s 3.7% level versus a 29-month low of 3.5% in September. This uptick had been expected and reflected an undesirable dip in labor force participation and the ratio of workers to the population.
Canada’s deviation from labor market expectations was even more extreme in October than in the United States. A 108k leap in jobs was over ten times greater than forecast and entirely represented full-time workers. On-year wage growth accelerated 0.3 percentage points to 5.5%.
In the wake of the U.S. report, the dollar and equity future declined additionally.
Copyright 2022, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: China current account, Euro area PPI, Euroland composite PMI, U.S. labor market situation