Round up of today’s market news

North American News

US equity close: Big gains

• Closing changes for the main North American indexes

• S&P 500 up 1.9%
• DJIA +1.7%
• Russell 2000 +2.5%
• Nasdaq Comp +1.8%

NFP Preview: Forecasts from nine major banks, employment remains fairly healthy

Nonfarm Payrolls are forecast to increase by 180K in October vs. the stronger-than-expected 336K increase recorded in September.The Unemployment Rate is seen steady at 3.8% and Average Hourly Earnings are expected to fall two ticks to 4.0% year-on-year.

Commerzbank

We expect 230K new jobs to have been created in October, which would be roughly in line with the average for the last six months. From the Fed’s point of view, this would probably still be (too) high. Such a gain would not be a signal that the labour market is tightening and that wage pressures are easing.However, as Fed officials have recently tended to tone down expectations of rate hikes despite strong economic data, we would not see such a figure as a reason for a rate hike, at least as long as the Fed’s communication does not change significantly.

Danske Bank

We expect NFP growth to cool back towards the pre-September trend at 180K, yet still continue illustrating solid labour market conditions. Policymakers will keep a close eye on the earnings growth as well as the Q3 employment cost index to gauge how underlying inflation risks are developing.

Deutsche Bank

We expect the headline to come in at 140K.We also see the unemployment rate remaining at 3.8%.

ING

Following September’s leap of 336K, the market is expecting a much weaker outcome of 175K in October. Recent jobless claims numbers have suggested that while firing remains historically low, the rise in continuing claims hints at increasing difficulties with finding new work.We expect unemployment to remain at 3.8%, but wage growth could slow to 4% YoY, which would mark a post-pandemic period low.This should offer encouragement to the Fed that pipeline price pressures are easing and that it doesn’t need to raise interest rates any further.

NBF

Hiring could have been subdued in the month if previously released soft indicators such as S&P Global’s Composite PMI are any guide. Layoffs, meanwhile, may have increased slightly judging by a small rise in jobless claims between the September and October reference periods. With these two trends reinforcing each other, we expect job creation to have decelerated to a still decent 175K in the month. The household survey could show a similar gain, a development which would translate into a one-tick decline in the unemployment rate to 3.7%. This call assumes the participation rate slid to 62.7% from 62.8%.

RBC Economics

We look for a 208K gain in payroll employment.Still, labour demand has also been slowing under the surface in the US with job openings drifting lower and wage growth slowing.We look for the unemployment rate to tick up to 3.9% (despite higher employment) after climbing to 3.8% over August and September from 3.5% in July.

SocGen

We estimate a 190K gain for October, which assumes a 35K reduction due to increased strike activity. 

Citi

We expect NFP to rise by 160K in October, although with some temporary weakness due to the ongoing autoworkers strike. Absent the strike effect, we would be estimating a solid 190K increase. We also expect a 0.3% MoM increase in average hourly earnings in October, although with downside risks of a print that rounds to 0.2% and the unemployment rate to decline modestly to 3.7% in October, although with risks slightly tilted towards the upside for a print that remains at 3.8%.One issue worth watching over the coming months is a recent rise in continuing jobless claims.

CIBC

We expect healthcare and government sectors to continue their strong pace of hiring and provide a high floor for job growth. Despite representing just under 30% of employment, these two sectors have accounted for 60% of the jobs created since the start of the year, or an average of 134K per month. Other sectors have shown an increased pace of hiring in recent months as well, consistent with a broadening of demand pressures. The participation rate and the unemployment rate should remain unchanged in the month. We are slightly above consensus this week on jobs. Markets will start beating the drum for the Fed to tighten further if job gains turn well north of 200K again or there are material revisions to previous months. 

Wells Fargo

We expect the pace of hiring to slow in October and forecast employers added 190K jobs last month.We forecast the unemployment rate to hold steady at 3.8% in October.We also anticipate wage growth continued to cool in October.Growth in the labor force has helped restrain wage growth even as hiring has remained hot in recent months. We forecast average hourly earnings rose 0.3% in October, which would still translate to the slowest pace of annual wage gains in two years. 

US weekly initial jobless claims 217K vs 210K expected

• Jobless claims for the week ending October 28
• Prior initial claims 210K
• Continuing claims 1.818m vs 1.800m expected
• Prior continuing 1.790m

US Q3 prelim unit labor costs -0.8% vs +0.7% expected

• Third quarter productivity data

• Prior was +2.2% (revised to +3.2%)
• Q3 productivity +4.7% vs +4.1% expected
• Prior productivity +3.5% (revised to +3.6%)

US October Challenger layoffs 36.84k vs 47.46k prior

• Latest data released by Challenger, Gray, and Christmas Inc – 2 November 2023
• Prior 47.46k

US-based employers announced 36,836 job cuts last month, a roughly 9% increase compared to the same period last year. That continues the trend of rising job cuts relative to the corresponding month a year ago and can be seen as a sign of softening in labour market conditions overall.

US Sept factory orders +2.8% vs +2.4% expected

• US factory orders for September

• Prior was +1.2% (revised to +1.0%)

Details:

• Factory orders ex-transportation for Sept +0.8% versus +1.4% last month (revised to +1.5%)
• Durable goods order revised +4.6% versus +4.7% preliminary and -0.1% prior month
• Durable goods ex-defense +5.7% versus +5.8% preliminary. Last month -0.7%
• Nondefense capital ex-air +0.5% versus 0.6% preliminary. Last month +1.1%
• Durable goods ex transportation +0.4% vs 0.5% preliminary. Last +0.5%

Target CEO touts cautious outlook ahead of the holiday season

• Target CEO sees declining sales

Target CEO Brian Cornell was on CNBC today and offered up a cautious outlook for Q4.

He warned that sales of discretionary items have been falling for a number of quarters and that the trend may be worsening.

“Even in food and beverage categories, over the last few quarters, the units, the number of items they’re buying, has been declining,” he said in the interview.

Retailers have been struggling to manage inventories throughout the pandemic. They were initially caught with too little during the goods buying spree during the pandemic but last year had too much.

“We’ve taken a much more conservative approach in planning inventory this year,” Cornell said.

Blinken: We are determined to prevent escalation

• Comments from the US Secretary of State

• Need to set conditions for durable, sustainable peace for Palestinians and Israelis
• Will be talking about concrete steps to minimize harm to men, women and children in Gaza
• Democracies have responsibility to protect civilians
• Exports more aid trucks in coming days

BOCs Macklem: There are some reasons to believe that the neutral interest rate is higher

• BOCs Macklem speaking

• There are some reasons to believe that the neutral interest rate is more likely higher than lower

Commodities

Silver continues to consolidate near $22.80

• Silver gets left out of broad-market risk-on party.
• Silver backslides from $23.10 to trade into familiar lows.
• Risk appetite returns as investors herald the perceived end of Fed rate hikes.

Silver is getting left out of the broader market’s post-Fed celebration after Fed Chairman Jerome Powell struck a more dovish tone than many expected, and investors are stepping back into risk assets in anticipation of the formal end of the Fed’s rate hike cycle.

Traders will now be looking ahead to eventual rate cuts from the Fed and jostling for position.
Current markets are pricing in rate cuts to begin sometime in the latter half of 2024.

WTI Crude Oil rallies above $82.70 on risk-on impulse, Fed’s end tightening cycle

• WTI Crude Oil climbs more than 1.80%, rising above $82.00 per barrel, as US Dollar weakens.
• Investors react positively to Federal Reserve’s decision to keep rates unchanged, despite possible hawkish pullback.
• Bank of England’s decision to keep rates on hold and gloomy economic outlook cap WTI’s rally.

WTI, the US Crude Oil benchmark, climbed more than 1.80% on Thursday, snapping three days of losses, rising above $82.70 per barrel, gaining 2.28%.

Weekly US EIA natural gas inventories +79 bcf vs +80 bcf expected

• Weekly oil storage data
• Prior was +74

December natural gas came to life last week on the cold weather that’s hitting the US now. That will pull down inventories next week, or at least lead to much smaller builds. Natty was last down 6.7 cents to $3.426.

EU News

European equity close: Some late-day selling but still a big day of gains

• Closing changes for the main European indexes

• Stoxx 600 +1.6%
• German DAX +1.5%
• UK FTSE 100 +1.4%
• French CAC +1.9%
• Italy MIB +1.7%
• Spain IBEX +1.9%

Eurozone October final manufacturing PMI 43.1 vs 43.0 prelim

• Latest data released by HCOB – 2 November 2023
• Prior 43.4

The manufacturing recession in the euro area deepens as now employment conditions are starting to be noticeably hit as well. Given such a poor start to Q4, it is over to services once again to see if it can drag the Eurozone out of the mud and prevent deeper risks of a recession in the region. HCOB notes that:

“The Eurozone manufacturing sector’s trend over the last two years or so looks like a bumpy sleigh ride down into the valley. Given that the headline PMI did barely move over the last few months, including October, we may be about to reach the bottom of the valley. Thus, the big question is when we will begin to make an ascent. The stagnating new orders index, which remains deep in negative territory, and the similar behaviour of the Quantity of Purchase Index does not suggest an immediate turnaround. Having said this, history tells us that in many cases the levelling out of these indices is the precondition for a start of the recovery. We expect this to happen in the first half of next year.

“Companies continue to decrease their stock of purchases. Thus, we do not see any desire from firms to refill their empty shelves, which we’d expect during a demand recovery.In light of the new geopolitical tensions in the middle east, andsubsequent rise in downside risks, this is perhaps not fully surprising.

“Notably, companies cut staff much more aggressively in October than in the previous month. However, when we compare the headline PMI with the employment PMI, we see that the latter is actually in better shape than the former. This is kind of atypical because usually, both indices tend to move in sync, as we can see from the data between 2011 and 2019. There is a reason behind this seemingly odd behaviour which is the shortage of labour. That means many companies could not find people to fill their open positions. Hesitancy to lay off workers has meant that the jobs market is not taking as big of a hit as it did in past tough times.

“It looks like the eurozone countries are pulling each other down. With France, Italy, and Spain PMIs diving and Germany already signalling a deep manufacturing recession, it is pretty clear that the sector is headed for a contraction in all these countries this quarter.”

France October final manufacturing PMI 42.8 vs 42.6 prelim

• Latest data released by HCOB – 2 November 2023
• Prior 44.2

France’s manufacturing woes continue to deepen to start Q3 with the steepest drop in new orders since 2009 – that is if you take out the pandemic-hit months. Meanwhile, business confidence has also plunged to a three-and-a-half year low. HCOB notes that:

“France’s manufacturing sector is in deep trouble. According to the HCOB PMIs, output contracted in October for the seventeenth month running. New orders overall and abroad meanwhile deteriorated at the steepest pace since March 2009 outside of pandemic-hit months. Employment is on a sharper downward slide than in September, with the respective PMI closing in on early-2020 levels. Unsurprisingly, our nowcast suggests that the manufacturing sector is likely to hit a rough patch in the fourth quarter.

“Feeble demand is noticeably weakening the French manufacturing sector. Due to low new orders overall and abroad, backlogs of work are clearing at the fastest rate since early 2020.

“The manufacturing sector is in for a bumpy ride ahead. Manufacturers turned even more pessimistic in October, with growth expectations reaching an all-time low outside of pandemic-hit months. The companies surveyed cited demand deterioration as the main reason for the drop in expectations.With the rapid interest rate increases yet to have their full impact ondemand, given the lag this effect typically has, pessimism could spread even further.

“The fight against inflation is far from being over. The input and output prices PMIs rose for the second consecutive month in October, suggesting some price pressures are building again within manufacturing. Even though both input and output prices still dipped overall in October, the odds of prices going up soon are climbing. This is partly because of the Middle East crisis and the chance of oil prices jumping up again.”

Italy October manufacturing PMI 44.9 vs 46.2 expected

• Latest data released by HCOB – 2 November 2023
• Prior 46.8

That’s a miss on Italy as well as manufacturing conditions continue to be hampered by weak demand. Of note, output and new sales were seen contracting at a faster pace in October. HCOB notes that:

“It doesn’t look good for the Italian manufacturing sector. According to the HCOB PMI, output contracted for the seventh consecutive month with new orders overall and from abroad declining at some of the fastest rates in the last 12 months. According to official data from ISTAT, manufacturing has been declining continuously since the third quarter of 2022. With this new, weaker data it is almost certain that the decline in manufacturing will continue and likely accelerate.

“The recession in the manufacturing sector steepens. According to our nowcast model, which considers the PMI, manufacturing is set to decline 0.5% in the fourth quarter of 2023. Our model computes the strongest decreases in the intermediate and consumer goods segments, with the latest HCOB PMI figures also flagging weakness in these groups.

“Italian manufacturers are stuck in a rut with weak demand. Uncertainty surrounding the economic climate is clearly weighing on order book volumes, which shrank for the seventh month running. Rising geopolitical tensions and weak international demand were also two notable reasons as to why new export orders declined. Overall, sustained weakness indemand raises the possibility for a prolonged economic downturn.

“Manufacturers remain somewhat optimistic. The firms surveyed cited the hope of a market recovery as the main reason for their optimism. However, the Future Output PMI undercuts the long-term average, which could be seen as the divider between optimism and pessimism.”

Spain October manufacturing PMI 45.1 vs 47.0 expected

• Latest data released by HCOB – 2 November 2023
• Prior 47.7

A steep plunge in production, new orders, and employment makes for a really poor report for Spain’s industry to start Q3. HCOB notes that:

“These PMI manufacturing figures are downright nasty. Output is hitting the brakes hard, and new orders have taken a steep slide from the previous month. Part of it was due to weak external demand. But it looks as if domestical clients are also stepping back from buying manufactured goods. In addition, purchases took a hard hit, underscoring the fragile situation of the sector.

“Spain’s manufacturing sector is stuck in a recession pit and digging deeper. With the updated PMI numbers considered in our GDP nowcast, manufacturing could plummet by 2% in the fourth quarter. And after the drops in the two quarters before we could end up in the red for nine months straight since April by the end of the year.

“The destocking cycle does not seem to be over in Spain. Companies are clearing out their inventories of purchased goods fast, hitting a ten-year record – just like during the 2011 to 2013 downturn. Thus, companies may wait a while until they restart to build up inventories again.

“While output prices fell at a much faster rate in October, input prices decreased at a somewhat lower pace in comparison to the month before. Manufacturers were slashing their selling prices, but the bills they are paying did not see as big of a dip from the month before. This fits into the perception that companies are losing their ability to set prices.”

Germany October final manufacturing PMI 40.8 vs 40.7 prelim

• Latest data released by HCOB – 2 November 2023
• Prior 39.6

The headline reading is an improvement to September but is still a very poor one as weak demand conditions are weighing heavily on Germany’s manufacturing sector. Of note, job cuts are also picking up and that will be something to be mindful about in the months ahead if overall conditions do not recover significantly. HCOB notes that:

“The trajectory of Germany’s economy resembles a plane preparing for touchdown: decelerating its descent before landing at the bottom. Indeed, manufacturing output was still falling in October, but slower than over the last few months. This is also true for the forward-looking indicator of new orders. Considering the PMI figures in our nowcast model, it seems clear that manufacturing is still in a downturn for the current year. Yet, signs are pointing towards a potential rebound by the first half of next year. In line with this, there’s a modest deceleration in the rate at which companies trim their purchases.

“Employment cutbacks ramped up in October. Yet, when comparing to previous recessions, the current job scenario seems relatively favourable given the overall situation in the manufacturing sector. We see this as the result of the structural labour shortage, meaning that most companies are holding onto the people they have got. Given the recent improvement of the headline PMI, we question if companies would increase the pace of job cuts in the coming months.

“Across the board, we are seeing the slump ease up a bit, including consumer goods, intermediates, and investment goods. But, the investment goods sector is still taking a hard hit as new orders are down sharply again. Demand in this capital and debt intensive sector apparently is reacting more than others to higher interest rates.

“Prices of manufactured goods are still on a downhill slide. That is mostly the case for intermediate goods, but for finished goods to a lesser degree. Price cuts, which have been underway since June 2023, have slowed down over the last few months. However, should oil prices, which spiked due to the war in the Middle East, remain at higher levels for a longer period, companies could bump up what they charge, again.”

Germany October unemployment change 30k vs 15k expected

• Latest data released by the Federal Employment Agency – 2 November 2023

• Prior 10k
• Unemployment rate 5.8% vs 5.8% expected
• Prior 5.7%

Switzerland October CPI +1.7% vs +1.7% y/y expected

• Latest data released by SECO – 2 November 2023

• Prior +1.7%
• Core CPI +1.5% y/y
• Prior +1.3%

BOE leaves bank rate unchanged at 5.25%

• The November monetary policy decision from the Bank of England
• Prior 5.25%
• Bank rate vote 3-6 vs 3-6 expected (Greene, Haskel, Mann voted to raise by 25 bps)
• Policy likely needs to be restrictive for extended period of time
• Will continue to monitor closely inflation persistence and resilience in the economy as a whole
• Further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures
• Estimates UK GDP flat for Q3 2023 (previously +0.1%)
• Estimates UK GDP to be +0.1% in Q4 2023
• Inflation well above target of 2% but expected to continue to fall sharply
• Market participants had reported an increasing conviction that UK policy rates would remain ‘higher-for-longer’
• Some business surveys are pointing to a fall in GDP in Q4 2023
• But more forward-looking indicators were less pessimistic about growth prospects

BOE’s Bailey: Inflation is still too high

• Comments from Bailey after the BOE rate decision
• We will keep rates high enough for long enough to return inflation to target
• OFGEM price cap means we can be confident about energy bills lowering inflation
• It’s important that services inflation falls steadily over next year
• There is a considerable way to go on quashing inflation
• Whether GDP growth is slightly negative or slightly positive won’t impact monetary policy
• How long restrictive stance will be needed depends on incoming data
• We have to be mindful of balance of risks between doing too little and too much
• Events in Middle East create risk of higher energy prices
• We are making good progress on bringing inflation down
• Now some signs that the economy has started to grow more slowly, that’s to be expected

ECB’s Knot: Policy rates now are at a good ‘cruising altitude’

• Remarks by ECB policymaker, Klaas Knot

• Current level of rates can remain for some time
• Should be a little patient and not raise rates too much to prevent choking off the economy

Other News

China agrees to arms control talks with the US

• According to the Wall Street Journal, China is agreeing to arms control talks with the US

According to the article:

• The Biden administration is preparing for a discussion with China on nuclear-arms control to address concerns about a destabilizing three-way arms race with China and Russia.
• The talks, scheduled for Monday, mark the first such discussions with China since the Obama administration and aim to reduce the risk of miscalculation.
• These discussions do not signal formal negotiations on nuclear force limits but offer an opportunity to understand China’s nuclear doctrine and its growing nuclear arsenal.
• Washington is also working to engage Russia in separate arms-control talks after the New Start treaty expires in 2026.
• The opening of talks with China comes as the U.S. and China are attempting to improve relations ahead of a summit between President Biden and Chinese leader Xi Jinping.
• China has not disclosed its expectations for the talks, but it has expressed interest in arms control and nonproliferation discussions.
• China’s nuclear forces have been expanding, making it a significant player in nuclear discussions.
• The U.S. aims to gradually involve China in arms-control dialogues and discussions on nuclear doctrine, policy, and stability.
• The talks will be led by senior State Department official Mallory Stewart and Sun Xiaobo, the head of the arms-control department at the Chinese Foreign Ministry.

Hong Kong’s Hang Seng Tech index up 3%

• Big gains in Asia Pacific stocks

Hong Kong’s Hang Seng Tech indexes currently about 3% on the day. Meanwhile the Hang Seng index is up at 2.02% and the Nikkei 225 is up 1.2%.

Australia’s good trade balance 6.786 million versus 9.400 million estimate

• Australia’s goods trade balance for September

• Prior month 9.640M
• Australia’s goods trade balance 6.786 million versus 9.400 million estimate
• Goods/services imports 7.5% versus 0.0% last month
• goods/services exports -1.4% versus 4.0% last month

Japan 10 year JGB auction average yield of 0.910%

• Auction has a tale of 0.5 basis points

Japan sales 2.2 trillion of 10 year JGBs:

• Yield 0.910%. The yield at lows accepted price 0.915%. Last auction came in at 0.768%
• Tail of 0.05 versus 0.02 previously
• bid to cover 3.62X vs 3.93X at last auction
• lowest price comes in at 98.95 versus 100.27 previously.
• Average price comes in at 99.00 versus 100.27 previously

Japans PM Kishida: economic stimulus package to total about ¥17 trillion

• Japan Prime Minister Kishida speaking

• Economic stimulus package to total about ¥17 trillion one including tax cuts
• Extra budget to fund a ¥13.1 trillion of economic stimulus package
• Will strive to pass through extra budget at an early date

BOJ’s main message is to maintain easy policy, even if their actions contradict – report

• Reuters reports on the matter, citing interviews with six sources familiar with things behind the scenes at the Japanese central bank

The report says that the BOJ is to continue a gradual exit from its ultra-loose monetary policy and may look to step up its plans some time next year. The sources say that Ueda is trying to stick to a pattern that he has established in his first six months as governor of the central bank. One said that:

“Given uncertainty over the economic outlook, the BOJ probably wants to wait at least until spring next year in normalising policy. If so, it makes sense to keep the current guidance dovish.”

“There’s a lot of hurdles to clear before an exit, which means you don’t want to get markets too excited about the chance of any early lift-off.”

South Korea CPI was 3.8% year on year versus 3.6% expected

• South Korea CPI data for October 2023

• South Korea CPI 3.8% year on year versus 3.6% expected
• CPI month-to-month 0.3% versus 0.15% expected
• Core CPI 3.2% year on year versus 3.3% in September
• CPI rises at the fastest pace since March 2023

Cryptocurrency News

Bitcoin whale address moves BTC for the second time in 12 years

• Bitcoin price is expected to fall back owing to the macro conditions and price indicators.
• The potential of selling is high ahead of the US Nonfarm Payrolls report and investors’ booking profits.
• Whale wallets holding $230 million worth of BTC have moved their holding only for the second time in 12 years, suggesting an inclination to sell.

Bitcoin price could be inching toward saturation following the recent rally. With investors selling for profits, macro conditions opposing optimistic outlooks and the market cooling down, a decline does not seem too far-fetched.

Arbitrum price aims 30% rally after breakout from a double bottom pattern

• Arbitrum price has confirmed a breakout above the $0.9703 neckline of a double bottom pattern.
• ARB could rally 30%, steered by key on-chain metrics with a breakout objective of $1.2735, levels last tested in July.
• Invalidation of the bullish thesis will occur if the altcoin breaks and closes below the $0.9000 psychological level on the daily timeframe.

Arbitrum (ARB) price action beginning August through October has culminated in a double-bottom technical formation, coming at a time when the broader market is bullish, led by the king of cryptocurrency, Bitcoin.

Arbitrum price action forms a double-bottom pattern

Arbitrum (ARB) price has recovered all the ground lost in October, and then some, with its price action from August 25 to October 31 building up to a double bottom pattern.

This technical formation occurs when the asset’s price reaches a low point (support), bounces back up to the neckline, dips again to the same support level, and then bounces back up again to the neckline. In so doing, it creates some sort of “W” shape.

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