Morning Note: A Round-Up of Market News.
Market News
The yield on the 10-year US Treasury note trades at 4.09%, the lowest in five months, as evidence of a sharper deterioration in the US labour market favoured a dovish outlook for the Federal Reserve and moved investors to safe assets. Non-farm payrolls rose by only 22k August, well below expectations of a 75k increase. The unemployment rate climbed to 4.3%, the highest since 2021 and in line with expectations. The dollar weakened and gold hit another all-time high and currently trades just above $3,600 an ounce. In China, the PBOC increased its gold holdings in August for a 10th month.
The result consolidated expectations that the Fed will restart its cutting cycle with a 25bps reduction in rates this month, while rate traders swung to favour three total rate cuts this year. Two-year Treasury yields hit the lowest level since 2022. This week investors await two key inflation reports.
Political uncertainty in France continues to worry investors. Prime Minister François Bayrou is widely expected to lose a crucial confidence vote in parliament today, potentially leading to a government collapse, delays to the budget process, or even snap elections. French Bonds yields for the 10-year note trade at a 78bps premium to their German counterpart, and only an 8bps discount to the Italian 10-year yield.
Brent Crude rose to $66.70 a barrel after OPEC+ said it would restart 137,000 barrels per day (b/d) of output from October, much smaller than the increments scheduled for the previous two months. The cartel agreed on Sunday to begin unwinding 1.65m b/d of production cuts that were set to remain in place until the end of 2026. An analysis of OPEC+ production suggests the actual additions are likely to be far more modest than advertised, as most members are already producing at or near full capacity. The main beneficiary appears to be Saudi Arabia, with the Kingdom’s output set to increase from 9.07m b/d in March to 9.98m in September.
The yen fell and Japanese stocks gained (Nikkei 225, +1.5%) after PM Shigeru Ishiba said he intends to step down. TBS reported a leadership contest will be held on 4 October. Strategists warned long-dated government bonds look most vulnerable amid growing concerns over fiscal spending. China’s exports grew 4.4% in August from a year earlier, slower than forecast. Imports climbed 1.3%, leaving a trade surplus of $102bn. Elsewhere, in Asia equity markets were also firm: Hang Seng (+0.8%); Shanghai Composite (+0.4%).
The FTSE 100 is currently little changed at 9,244, while Sterling buys $1.3520 and €1.1525. UK wages for new hires are rising at the slowest pace since March 2021, according to a survey by the Recruitment & Employment Confederation and KPMG.
The US is proposing annual approvals for exports of chipmaking supplies to Samsung and Hynix factories in China, people familiar said.
Source: Bloomberg
