Newsquawk European Market Wrap - 4th October 2024

• NFP came in hot with the headline number above the top end of estimates, unemployment unexpectedly fell


• Odds of a 25bps Fed cut have risen to 93% vs. 65% pre-release with a total of 57bps easing seen by year-end vs. 66bps pre-release


• Stocks higher, fixed income lower, USD higher vs. all peers crude bid on geo risk

EQUITIES

• 
  European bourses, Stoxx 600 (+0.3%) began the session on a modestly weaker footing, and traded fairly rangebound ahead of the US NFP report; a hot report which sparked upside across the equities complex.


• Taking a deeper look at the metrics, headline printed above the top-end of analyst expectations at 254k, with the unemployment rate edging lower to 4.1% from 4.2%. The wages metrics were also above expectations; Y/Y came in at 4% (exp. 3.8%), the M/M figure printed at 0.4% (exp. 0.3%). Overall the release indicates that the jobs market remains strong; but Pantheon Macro suggests a low response rate suggests the jump in payrolls will likely be revised away. Finally, in terms of market pricing, market pricing for the November confab reacted hawkishly; now pricing 26bps worth of cuts vs 33.7bps pre-release.


• 
  European sectors held a positive bias; Banks took the top spot, following the hotter-than-expected NFP report, which sparked a considerable bid in yields. Energy continues to reside near highs, benefiting from gains in the underlying crude complex. Autos were also towards the top of the pile after the EU backed Chinese EV tariffs. In terms of stock specifics, Ubisoft (+10%) gains amid takeover reports.


• 
  US Equity Futures (ES +0.7, NQ +1%, RTY +0.6%) are entirely in the green, benefiting from the aforementioned NFP report. In terms of stock specifics, Spirit (-35%) slips amid bankruptcy speculation; Rivian (-7%) is on the backfoot after it cut FY production guidance.

FX

• 
  USD - DXY soared onto a 102 handle following the hot NFP print which triggered a hawkish move in Fed pricing. Odds of a 25bps Fed cut have risen to 93% vs. 65% pre-release with a total of 57bps easing seen by year-end vs. 66bps pre-release. DXY is now at its highest level since 16th August after venturing to a peak of 102.64; 103 is the next target.


• 
  EUR - Despite a steady start to the session, EUR/USD was slapped down to a 1.09 handle following the post-NFP buying. Fresh EZ fundamentals were light during today's session, however, from a bigger picture perspective, this week has been characterised by a scaling back of dovish Fed bets and an increase in dovish ECB ones. EUR/USD is now down to its lowest level since 15th August; 1.0949 was the low that day.


• 
  GBP - Softer vs. the USD but to a lesser extent than peers on account of hawkish BoE comments and strong construction PMI data. On the former, the BoE's Chief Economist took a contrasting position to Governor Bailey yesterday, noting that the need for caution points to a gradual withdrawal of monetary policy restrictions. Cable went as low as 1.3070 but failed to hold below its 50DMA @ 1.3073.


• 
  JPY - The laggard across the majors vs. the USD on account of today's hot NFP release which came in the context of dovish comments earlier in the week by Japanese PM Ishiba who downplayed the chances of a near-term rate hike by the BoJ. USD/JPY ventured as high as 148.80; its highest level since 16th August; 149.34 was the high that day.


• 
  Antipodeans - Both fell victim to the firmer USD with AUD/USD slipping back onto a 0.67 handle for the first time since 23rd September. Today's NFP release has completely reversed the recent upside stemming from Chinese stimulus optimism. However, it is worth noting that the RBA remains one of the more hawkish players within the G10 central banking space. Similar price action for NZD/USD which has lost 0.62 status. 0.6148 is the low for today's session with attention for the pair now turning towards next week's RBNZ rate decision.

FIXED

• 
  Bunds - Extended the pullback seen since Tuesday which saw the Dec'24 10yr print a fresh contract high @ 136.20. In terms of fundamentals, the decline in prices and upside in yields is likely more energy and US led given that officials at the ECB (including some notable hawks) have begun to position themselves alongside market pricing by endorsing a 25bps rate cut this month. The German 10yr yield continued its upside and has been as high as 2.241% vs. the 2.011% multi-month low printed earlier in the week.


• 
  Gilts - Kicked the session off on the backfoot inline with European paper and a reversal of yesterday's upside that was driven by dovish comments from BoE Governor Bailey. Downside for the UK 10yr was added to by comments from BoE Chief Economist Pill who took a more hawkish stance than his boss by that the need for caution points to a gradual withdrawal of monetary policy restrictions, adding that it will be important to guard against the risk of cutting rates either too far or too fast. Further selling pressure was triggered by the post-NFP selling pressure in FI. Gilts slipped from a 98.14 peak before finding support bang on the 97.00 mark. At 4.136%, the UK 10yr yield is now at its highest level since 26th July.


• 
  USTs - Despite an early attempt to claw back some of yesterday's ISM Services induced losses, the unambiguously hot US jobs report sent US paper sharply lower. The headline of the report came in above the top end of expectations, wages were firmer than expected and the unemployment rate unexpectedly fell. As such, odds of a 25bps Fed cut have risen to 93% vs. 65% pre-release with a total of 57bps easing seen by year-end vs. 66bps pre-release. The Dec'24 UST contract fell from a 114.01+ peak to a 112.31 low. The US curve has notably bear-steepened with the 2s10s spread narrowing to 8.7bps from the 19.9bps seen at the start of the week. The US 10yr yield ventured as high as 3.973% with focus on a potential test of 4%; not breached since 8th August.

COMMODITIES

• 
  Crude Futures – Maintained an upward bias against the backdrop of heightened geopolitics heading into the weekend, with Israel's response yet to come. Prices hardly moved on the US jobs report, which came in hot on all fronts and prompted a sharp rise in the Dollar. On geopolitics, US President Biden recently ruled out support for Israeli strikes on nuclear facilities (which would've been the worst-case scenario), whilst yesterday when Biden was asked if he would support Israel striking Iran’s oil facilities, he responded “We’re discussing that.” - this will likely be the main driver in the crude complex for now. That being said, a rise in crude prices for the US President in the run-up to elections will be unfavourable. WTI Nov traded in a USD 73.46-75.06/bbl parameter, with the top end marking a weekly high (vs weekly low of USD 66.33/bbl); Brent Dec also resides near its weekly best in a USD 77.39-79.00/bbl range (vs weekly low of USD 69.61/bbl).


• 
  Precious Metals - Mixed trade across precious metals ahead of the US jobs report but spot gold initially held a mild upward bias on the back of the aforementioned geopolitics. However, the hot September jobs report saw forecasts beat on all fronts and prompted a modest hawkish shift in market pricing. As such the Dollar surged and in turn pressured precious metals. Spot gold fell from USD 2,657.61/oz to 2,640.32/oz before extending losses to a fresh session low at 2,632/oz (vs high 2,667.87/oz), with the weekly range between USD 2,624.78-2,673.26/oz.


• 
  Base Metals – Firmer across the board despite the surge in the Dollar post-NFP, as the report itself alleviates worries of a faltering economy. 3M LME copper remained under USD 10k/t for most of the session and initially saw a dip on the US jobs report before recovering and reclaiming USD 10k/t, with the red metal notching a USD 9,889.50-10,024.00/t parameter.

EUROPEAN NEWS

• 
  "EU countries approve duties (up to 35% [additional tariffs]) on unfairly subsidized Chinese electric cars, despite Germany's last-minute opposition", according to Politico (as expected)


• EU Commission reiterates that negotiations with China regarding tariffs on China-made EVs are ongoing.


• Chinese Commerce Ministry says that following the EU EV tariff vote, China will take all necessary measures to safeguard the interests of Chinese firms.


• Germany, France, and Italy urging the EU to ease bank regulation, according to Bloomberg.

EUROPEAN DATA

• 
  French Industrial Output MM (Aug) 1.4% vs. Exp. 0.2% (Prev. -0.5%, Rev. 0.2%)


• 
  Spanish Ind Output Cal Adj YY (Aug) -0.1% vs. Exp. 0.1% (Prev. -0.4%)


• 
  German HCOB Construction PMI (Sep) 41.7 (Prev. 38.9)


• 
  Italian HCOB Construction PMI (Sep) 47.8 (Prev. 46.6)


• 
  EU HCOB Construction PMI (Sep) 42.1 (Prev. 41.4)


• 
  French HCOB Construction PMI (Sep) 37.9 (Prev. 40.1)


• 
  Italy Q2 GDP revised to 0.6% YY (prev. 0.9%), via ISTAT

CENTRAL BANKS

• 
  ECB Vice President de Guindos says by the end of 2025, inflation and core inflation are expected to hover around 2%; adds it is too early to declare victory in fight against inflation. Says recent inflation data has been good, represented by a positive surprise. Growth still reflects risks to the downside. In general the ECB is in favour of cross-border consolidation in the eurozone. Its better to be cautious when lowering rates.


• 
  BoE's Chief Economist Pill said ample reason for caution in assessing the dissipation of inflation persistence; need for such caution points to a gradual withdrawal of monetary policy restrictions. Further cuts in the Bank Rate remain in prospect but it will be important to guard against the risk of cutting rates either too far or too fast. He remains concerned about the possibility of structural changes sustaining more lasting inflationary pressures. "does not think level of interest rates is having more than a marginal impact on UK business environment"

GEOPOLITICS

• 
  Iranian Supreme leader Khamenei said will strike again if necessary. Adds "we will not delay nor rush to respond to Israel".


• Israeli Defense Minister says "the ground operation on the northern border will continue until the area is cleared of weapons", via Asharq News.


• Israeli military says for the first time in almost two months, there are sirens sounding in southern Israel.


• Iran will target Israeli energy and gas installations if Israel "commits error" to attack Iran, according to SNN News citing Guards Commander.


• US Pentagon says it coordinates with Israeli counterparts on plans to respond to Iran; has asked Israel to put controls on it.

NOTABLE NORTH AMERICAN NEWS

• Former US President Obama is to campaign for Democratic candidate and VP Harris in the run-up to the election, according to Washington Post

NORTH AMERICAN DATA

• 
  US Non-Farm Payrolls (Sep) 254.0k vs. Exp. 140.0k (Prev. 142.0k, Rev. 159k); two month net revisions +72k (prev. -86k)


• 
  US Private Payrolls (Sep) 223.0k vs. Exp. 125.0k (Prev. 118.0k, Rev. 114k)


• 
  US Manufacturing Payrolls (Sep) -7.0k vs. Exp. -5.0k (Prev. -24.0k, Rev. -27k)


• 
  US Government Payrolls (Sep) 31.0k (Prev. 24.0k, Rev. 45k)


• 
  US Unemployment Rate (Sep) 4.1% vs. Exp. 4.2% (Prev. 4.2%)


• 
  US Average Earnings MM (Sep) 0.4% vs. Exp. 0.3% (Prev. 0.4%, Rev. 0.5%)


• 
  US Average Earnings YY (Sep) 4.0% vs. Exp. 3.8% (Prev. 3.8%, Rev. 3.9%)


• 
  US Average Workweek Hrs (Sep) 34.2hrs vs. Exp. 34.3hrs (Prev. 34.3hrs)


• 
  US Labor Force Participation (Sep) 62.7% (Prev. 62.7%)

04 Oct 2024 - 15:00- ForexData- Source: Newsquawk