Renta 4: Opening higher (Eurostoxx futures +0.6%, S&P futures 0%), picking up Wall Street’s gains after the close of European markets and awaiting the US employment data. In the background, China’s October Caixin PMIs, like the official ones, show a slowdown and point to an almost stagnant economy: services 50.4 ( versus 51 estimated and 50.2 previously) and composite 50 (versus 50.9 previously). At the corporate level, Apple’s results yesterday after the American close were met with declines in the after-hours markets (-3%) on the guidance that the Chinese market remains weak and will not register the expected improvement in Q4.
The focus of the day will be on the official US employment report, with moderation expected in non-farm payrolls (180,000 estimated versus 336,000 previously) and hourly wages (+4%e year-on-year versus +4.2% previously) and stability in the unemployment rate close to minimum levels (3.8%). All this after mid-week mixed data from ADP (accelerating, although less than expected) and the JOLTS vacancy survey (stable versus the expected fall), and reminding us of the importance of the labour market moderating to ensure a soft landing, control inflation, and allow the Fed to adopt a more dovish bias. Also important today will be the ISM services report for October, expected to moderate but clearly expanding (53 estmated versus 53.6 previously) and after the weakness seen in the ISM manufacturing.
Yesterday, the Bank of England kept interest rates at 5.25% for the second consecutive meeting, with six votes in favour (and three in favour of raising rates). The market continues to give a 30% probability of a further +25bp hike by the end of the year, while maintaining the first rate cut in Sept-2024, although the BoE is uncomfortable with these expectations of monetary easing and promises “tightening rates for a long time to come”. We believe that any move will be data-dependent, with inflation and wages remaining tight. Meanwhile, the UK 10-year IRR received the decision with -16 bps to 4.34%.
The Bank of Norway also held rates at 4.25%, but left the door open to a further hike next month unless inflation continues to moderate (current headline 3.3%, core 5.7%).