| USA Nonfarm payrolls rose 336K in September, blowing past consensus expectations calling for a +170K print. This positive surprise was compounded by a 119K cumulative revision to the previous months’ data. Employment in the goods sector advanced 29K on gains in both manufacturing (+17K) and construction (+11K). Payrolls in the mining/logging segment (+1K) also rose, but to a lesser extent. Jobs in service-producing industries, for their part, expanded 234K, with notable increases for health/social assistance (+66K), leisure/hospitality (+96K), professional/business services (+21K) and retail (+20K). Alternatively, 12K jobs were lost in the information category (-12K). The temporary help services category (-4K), meanwhile, saw payrolls decrease for the eighth month in a row. In all, 263K jobs were created in the private sector (the most in 8 months), compared with 73K in the public sector, the latter split between local/state (+67K) and federal (+6K) administrations. Average hourly earnings rose 4.2% in September, down from 4.3% in August and two ticks below consensus expectations. Month on month, earning progressed 0.2% for the second month in a row Nonfarm payrolls came in much stronger than expected in September as they reaped their largest gain in 8 months. The positive surprise was even bigger taking into account revisions to the previous months’ data. The details of the BLS report were, for the most part, very encouraging. The monthly gains were driven by the private sector, where payrolls advanced the most since January. True, job creation remained dependent on client-facing industries such as health/social services and leisure/hospitality but, judging from the diffusion index, gains were still the most widespread in 8 months. Cyclical industries also showed good results, with both manufacturing and construction posting healthy progressions The household survey painted a less upbeat picture of the situation prevailing in the labour market, with a reported 86K gain in employment. This increase, combined with a small increase in the size of the labour force (+80K) and an unchanged participation rate (+62.8%), left the unemployment rate unchanged at 3.8%. Full-time employment retraced 22K, while the ranks of part timers swelled 151K The ISM Manufacturing PMI remained in contraction territory for the eleventh month in a row. At 49.0, the headline index came in above consensus expectations calling for a 47.9 print. Production expanded (from 50.0 to 52.5) while new orders continued to shrink, albeit at a slower pace than in the prior month (from 46.8 to 49.2). Foreign demand remained weak, but the contraction was somewhat less marked than in August (from 46.5 to 47.4). One subindex did bode well for demand: U.S. factories reversed a monthslong trend and added workers in the month (from 48.5 to 51.2). Signs of supply chain improvements were visible in the report as both input prices (from 48.4 to 43.8) and supplier delivery times (from 48.6 to 46.4) sank further below the 50-point mark separating expansion from contraction. This, despite slightly better demand conditions, caused firms to catch up on unfilled orders, as evidenced by a decrease in work backlogs (from 44.1 to 42.4) The trade deficit narrowed to its lowest level in nearly three years, moving from $64.7 billion to $58.3 billion. This was due almost entirely to a 1.8% increase in goods exports (to $171.5 billion), led by crude oil (+$1.5 billion), fuel oil (+$0.5 billion), computer accessories (+$0.5 billion), and semiconductors (+$0.3 billion). Goods imports, for their part, regressed 0.9% on losses for cell phones (-$1.5 billion), semiconductors (-$0.7 billion), and electric apparatus (-$0.4 billion). As exports outpaced imports, the goods trade deficit shrank from $89.9 billion to $84.5 billion. The services surplus, meanwhile, widened from $25.2 billion in July to a post-pandemic high of $26.2 billion in August, as exports rose 1.25% while imports edged up only 0.15%. Travel exports continued to recover but stayed below their pre-pandemic level. Inversely, travel imports, which serve as a proxy for the number of Americans travelling abroad, held above their pre-pandemic level Construction spending advanced 0.5% in August after progressing an upwardly revised 0.9% the prior month (initially estimated at +0.7%). The monthly gain reflected increases in both the private sector (+0.5%) and the public sector (+0.6%). In the former, spending on residential projects increased 0.6%, while outlays on nonresidential structures were up 0.3%. Following a decent handoff from the previous quarter, Q3 is poised to see construction grow on the strength of the first two months of data The Job Openings and Labor Turnover Survey (JOLTS) showed that the number of positions waiting to be filled rose from 8,920K in July (initially estimated at 8,827K) to a three-month high of 9,610K in August. As this was not offset by an increase in the number of people looking for a job, the ratio of job offers to unemployed persons stuck to 1.5, its lowest point since September 2021 but still well above this indicator’s pre-pandemic level (≈1.20-1.25). The monthly increase in job offers was led by professional/business services (+509K), finance/insurance (+96K), local government (+76K), non-durable goods manufacturing (+59K), and federal government (+31K). Alternatively, job postings decreased in the following categories: trade/transportation/utilities (-109K) and leisure/hospitality (-54K) After failing to win backing for a government funding bill with significant spending reductions and increased border security from a majority of the Republican caucus in the US House of Representatives, House Speaker Kevin McCarthy allowed a bipartisan bill to reach the House floor. The measure passed by a vote of 335 to 91, though 90 Republicans voted against it. On Monday, a motion was filed seeking to oust McCarthy from the speaker’s chair. It passed on Tuesday 216 to 210, with eight Republican renegades joining with a united Democratic caucus to remove a speaker for the first time in history. The House is in recess until next week, when an election to select a new speaker will be held. Fitch Ratings eased fears that the disarray in Washington will spark another US debt downgrade, saying it does not think that the political brinkmanship, or even a government shutdown in the coming weeks, would affect the AA+/Stable sovereign rating of the United States. However, more than a week of the 45-day funding extension period agreed to over the weekend will be spent on parliamentary maneuvering, increasing the odds of another funding standoff in mid-November. On Friday morning, former President Donald Trump endorsed Representative Jim Jordan (R-OH) for speaker The administration of President Joe Biden canceled student debt totaling $9 billion for 125,000 borrowers. The borrowers who qualified for loan forgiveness have been in public service for over a decade or are enrolled in income-driven repayment plans while others suffer from disabilities San Francisco Fed President Mary Daly said Thursday that the Fed may not have to hike interest rates further due to the recent rise in bond yields. Earlier in the week, Atlanta Fed President Raphael Bostic said that he wants to hold rates steady at higher levels “for a long time” and that he expects only one rate cut in 2024, toward the end of the year The major indexes closed mixed over another week of top-heavy trading in which large-cap growth stocks—and the mega-cap information technology and internet stocks, in particular—widely outpaced the rest of the market. Reflecting the underperformance of most stocks, an equally weighted version of the S&P 500 Index lagged its market-weighted counterpart by the largest margin since March. Similarly, large-cap growth stocks outperformed their value counterparts (according to Russell indexes) and the large-cap S&P 500 outperformed the small-cap Russell 2000 Index by the widest margins over the same period The publication of September’s CPI report will attract a lot of attention. The energy component is likely to have had a positive impact on the headline index given the rise in gasoline prices during the month. This, combined with a decent gain in shelter costs, should result in a 0.4% increase in headline prices. Potentially, the YoY rate could remain unchanged at 3.7%. The advance in core prices could have been slightly more subdued (+0.3% MoM) thanks in part to a moderation in the transportation segment. This monthly gain should allow the annual rate to come down two ticks to 4.1%, its lowest level in two years Several Fed officials are scheduled to give speeches, notably Michael Barr, (Monday), Lorie Logan (Monday), Philip Jefferson (Monday), Raphael Bostic (Tuesday), Christopher Waller (Tuesday), Mary Daly (Tuesday), Michelle Bowman (Wednesday) and Patrick Harker (Friday). The central bank will also release the minutes of its September 19-20 meeting. UK Bank of England money and credit data for August has been published. Net mortgage approvals for house purchases fell from 49,500 to 45,400 in August, registering 2,000 below market expectations. This is the lowest level for six months and means that mortgage approvals remain at around a quarter below their pre-pandemic average. The trend of a slowdown in mortgage activity would support the prediction that the correction in UK house prices still has some way to go. The current peak to trough correction in nominal UK house prices is between 4.9 – 5.4%, depending on whether you look at the Nationwide or Halifax HPI measure. Prices fell by 0.4% in September from August, a less severe monthly drop than August’s 1.8% slide. Kim Kinnaird, director at Halifax Mortgages, said the Bank of England looked set to keep rates high after pausing a run of 14 back-to-back increases last month, “constraining buyer demand and putting downward pressure on house prices into next year.” Rival lender Nationwide said on Monday its measure of house prices in September were 5.3% lower than a year earlier, matching their fall in August which was the biggest annual drop since 2009, although prices were unchanged in monthly terms. Andrew Wishart, an economist with Capital Economics, said he expected a further drop of 5% or 6% in house prices on top of the 5% decline already seen since their peak. The fall in house prices so far remains much less marked than the climb during the coronavirus pandemic which lasted into last year. Halifax said the average price of homes remained 39,400 pounds ($47,953.74) above pre-pandemic levels at 278,601 pounds British lender Metro Bank on Saturday rejected a series of takeover approaches from specialist business lender Shawbrook and later held talks with bondholders about an equity injection alongside a debt restructuring, media reports said. Metro Bank rejected a series of takeover approaches from Shawbrook, including one made in the second half of September, Sky News reported on Saturday. It is unclear whether any live discussions were ongoing between the two companies, while the valuation of Shawbrook’s offers could not be established, the report said. Later, Bloomberg News reported that the bondholders have been in talks with Metro Bank about an equity injection by existing investors that would be carried out alongside a debt restructuring, citing a person familiar with the matter. The proposal would extend the maturity of its outstanding senior debt and convert the subordinated debt into equity, the Bloomberg report said, adding that shareholders will need to inject new equity to avoid a severe dilution. Sky News said that the meeting with the bondholders was aiming to thrash out a refinancing package totaling more than 500 million pounds ($611.90 million), and Bloomberg later said that Metro’s 250 million pounds tier 2 notes would be converted into equity and the maturity of 350 million pounds of senior bonds due 2025 would be extended. Both Metro Bank and Shawbrook declined to comment on the Sky News report when contacted by Reuters. Metro didn’t immediately respond to request for comment about the debt restructuring and equity injection. EU Both official and private-sector data suggested that the eurozone economy likely stumbled in the third quarter. The final Composite Purchasing Managers’ Index (PMI) compiled by S&P Global came in at 47.2 in September, marking a fourth consecutive monthly contraction. (PMI readings less than 50 correspond with shrinking business output.) The EU’s statistics office reported that eurozone retail sales fell more than expected in August, declining 1.2% sequentially due to a sharp drop in gasoline, mail orders, and internet shopping On a MoM basis, German industrial orders in August bounced back by a seasonally and calendar-adjusted 3.9%, after dropping 11.7% in July. Strong increases in computing, electronic, and optical products drove the gain. Meanwhile, exports fell 1.2% sequentially in August, substantially more than forecast, following a 1.9% decline the previous month due to weak global demand In local currency terms, the pan-European STOXX Europe 600 Index ended 1.18% lower as bond yields surged amid worries about an extended period of higher interest rates. Major stock indexes also fell. Italy’s FTSE MIB dropped 1.53%, Germany’s DAX declined 1.02%, and France’s CAC 40 Index lost 1.05%. The UK’s FTSE 100 Index slid 1.49%. CHINA China’s factory activity returned to expansion for the first time since March, the latest signal that the economy may have bottomed. The official manufacturing PMI rose to an above-consensus 50.2 in September from 49.7 in August. The nonmanufacturing PMI expanded to a better-than-expected 51.7 from 51.0 in August. Separately, the private Caixin/S&P Global survey of manufacturing and services activity both eased from the previous month but remained in expansion Domestic activity in China picked up significantly during the eight-day holiday. Approximately 395 million trips were taken via road, rail, air, and waterways in the first four days of the holiday, almost 76% above the prior year period, according to the Ministry of Transport. Box office sales reached RMB 1.2 billion in the first three days, ahead of sales reported a year earlier. Meanwhile, the offshore gambling hub of Macau received more than 160,000 visitors from mainland China and Hong Kong on Saturday, marking the highest single-day total since the pandemic China’s crisis-hit property sector showed slight improvement in September. New home sales by the country’s top 100 developers fell 29.2% in September from a year earlier, easing from the 33.9% drop in August, according to the China Real Estate Information Corp. The slower month-on-month decline came after Beijing rolled out a raft of stimulus measures targeting the property sector in August Financial markets in China were closed last week for the Mid-Autumn Festival and National Day holiday and will reopen Monday, October 9. The Hong Kong Stock Exchange resumed trading last Tuesday, and the benchmark Hang Seng Index declined 0.14% for the holiday-shortened week, according to FactSet. |
| Sources: T. Rowe Price, MFS Investments, National Bank of Canada, Reuters, M. Cassar Derjavets. |
