Gains in employment costs slowed, pointing to a 25 bps Fed rate cut in November

The Daily Shot: 01-Nov-24
The United States
Canada
The United Kingdom
The Eurozone
Japan
Asia-Pacific
China
Emerging Markets
Commodities
Energy
Equities
Credit
Global Developments
Food for Thought



 

The United States

1. Consumer spending posted solid growth in September.
 

 
Here are the spending trends for goods and services.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
This chart compares the trends in real consumer spending and disposable personal income.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
Real disposable personal income per capita is running above the pre-COVID trend.
 
Source: @jasonfurman  
 
Savings slowed in September.
 

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2. The PCE inflation picked up in September in line with expectations.
 

 
Here is the supercore PCE measure (monthly changes).
 

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3. Growth in employment costs slowed more than expected last quarter, suggesting that the Fed is likely to deliver a 25 bps rate cut in November.
 

 
4. Next, we have some updates on the labor market.
 
Initial jobless claims eased further as the effects of the recent hurricanes diminished.
 

 
Here is the seasonally adjusted index.
 

 
Continuing claims are running slightly above last year’s levels.
 

 
Layoff announcements eased in October.
 

 
The recent decline in the unemployment rate differs from previous instances when the Sahm Rule was triggered.
 
Source: Deutsche Bank Research  
 
Labor supply is increasing.
 
Source: Alpine Macro  
 
What should we expect from today’s employment report?
 
Leading indicators:
 
Source: Goldman Sachs; @MikeZaccardi  
 
BofA (100k):
 
Source: BofA Global Research  
 
Nomura (110k):
 
Source: Nomura Securities  
 
Oxford Economics (75k):
 
Source: Oxford Economics  
 
Goldman expects that the hurricanes affected hours worked and distorted hourly wage measures.
 
Source: Goldman Sachs; @MikeZaccardi  

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5. The MNI Chicago PMI dipped further into contraction territory in October, partially due to Boeing’s challenges.
 

 
6. Mortgage rates saw their largest increase in October since 2022.
 

 
7. Markets largely anticipate a 25 basis point rate cut in November, …
 

 
Source: Numera Analytics (@NumeraAnalytics)  
 
… with 44 bps of reductions priced in for the rest of the year.
 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
Here is a look at the Treasury curve change over the past seven days.
 


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Canada

1. Canada’s GDP growth stalled in August.
 

 
Source: Reuters   Read full article  
 
A jumbo BoC rate cut looks increasingly likely in December (2 charts).
 

 
Source: @TheTerminal, Bloomberg Finance L.P.  
 
Economists still see a 25 bps rate reduction this year but now expect 100 bps in 2025.
 
Source: @TheTerminal, Bloomberg Finance L.P.  

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2. The loonie has been selling off vs. USD.
 

 
The yield spread between Canadian and US 10-year bonds has fallen below -1%, marking its lowest point in decades.
 

 
Thursday was a tough day for Canadian stocks.
 

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3. The CFIB small business outlook remains robust.
 

 
Here is the breakdown by sector and province (no data was available for the natural resources sector).
 


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The United Kingdom

1. Gilts sold off further on Thursday.
 

 
While fiscal concerns stemming from the latest budget contribute to this trend, the decline also reflects expectations of stronger economic growth due to easier fiscal policy.
 

 
Source: BofA Global Research  
 
Rate cut expectations have been curtailed somewhat.
 

 
The pound has been under pressure.
 

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2. Home price appreciation slowed in October.
 


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The Eurozone

1. As we saw yesterday, inflation readings in October were a bit firmer.
 
Italy:
 

 
France:
 

 
The Eurozone:
 

 

 
Source: CNBC   Read full article  

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2. German retail sales surprised to the upside.
 

 
3. The euro-area unemployment rate is at record lows.
 

 
Here is Italy’s unemployment rate.
 


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Japan

1. The yen is stronger on BoJ’s comments.
 

 
Source: Kyodo News   Read full article  
 
The 2-year JGB yield is at multi-year highs.
 

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2. Services inflation has been firmer.
 
Source: ING  


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Asia-Pacific

1. Taiwan’s GDP growth was stronger than expected last quarter.
 

 
Source: Reuters   Read full article  
 
However, the manufacturing PMI shows factory activity growth slowing.
 
Source: S&P Global PMI  

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2. South Korea’s manufacturing PMI remains in contraction territory, …
 
Source: S&P Global PMI  
 
… as exports disappoint.
 

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3. Gains in Australia’s housing prices slowed.
 

 
New Zealand’s housing market continues to struggle.
 


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China

1. The Caixin manufacturing PMI corroborated the official report, indicating that China’s factory activity has resumed growth, bolstered by recent stimulus measures.
 

 
2. Hong Kong’s GDP unexpectedly contracted last quarter.
 

 
Source: SCMP   Read full article  

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3. Outlows from China-focused equity funds continue.
 
Source: BofA Global Research  


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Emerging Markets

1. Let’s run through Asian PMI trends.
 
Indonesia (sill contracting):
 
Source: S&P Global PMI  
 
Malaysia (treading water):
 
Source: S&P Global PMI  
 
Thailand (growth stalling):
 
Source: S&P Global PMI  
 
Vietnam (back to growth):
 
Source: S&P Global PMI  

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2. Colombia’s central bank cut rates again, …
 

 
… despite very low unemployment.
 

 
Source: @economics   Read full article  
 
Colombia’s bonds and the peso have been selling off.
 

 

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3. It’s been a challenging month for Indian stocks.
 

 
4. Next, we have some performance data for October.
 
Currencies:
 

 
Bond yields
 

 
Equity ETFs:
 


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Commodities

1. Flows into commodity funds have been robust.
 
Source: BofA Global Research  
 
Funds focused on the materials sector are also seeing inflows.
 
Source: BofA Global Research  

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2. Orange juice futures continue to rally amid tight supplies.
 

 
3. Here is October’s performance data.
 


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Energy

1. Crude oil is rebounding as geopolitical risks resurface.
 

 
Source: @axios   Read full article  
 
Oil implied vol jumped.
 

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2. Crude oil could benefit from improved global liquidity.
 
Source: Simon White, Bloomberg Markets Live Blog  
 
3. European natural gas futures are selling off.
 

 
Source: @markets   Read full article  

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4. It’s time to go nuclear.
 
Source: @dailychartbook  


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Equities

1. Tech shares pulled the market sharply lower on Thursday, …
 

 

 
… with the S&P 500 and Nasdaq 100 nearing their 50-day moving averages.
 

 

 
Here are the details behind Thursday’s selloff.
 

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2. Reactions to the latest tech earnings were mixed. Futures are higher this morning
 
Amazon:
 

 
Apple:
 

 
Intel:
 

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3. The Magnificent 7 index has formed an ascending triangle.
 

 
4. Equity funds are seeing some ouflows.
 
Source: BofA Global Research  
 
5. VIX climbed again, …
 

 
.. with the VIX curve inverting further.
 

 
Here is the ratio of the one-month VIX to the three-month VIX.
 

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6. The S&P 500 concentration has reached extreme levels.
 
Source: BofA Global Research  
 
7. Mutual fund managers are maintaining minimal cash reserves to avoid underperformance.
 
Source: BofA Global Research; @dailychartbook  
 
8. Here is a look at ETF launches and closures.
 
Source: @NateGeraci, @Todd_Sohn  
 
9. Below is some performance data for October.
 
Sectors:
 

 
Equity factors:
 

 
Macro basket pairs’ relative performance:
 

 
Thematic ETFs:
 

 
Largest US tech firms:
 


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Credit

1. Here is a look at the leveraged loan market size.
 
Source: @markets   Read full article  
 
2. Below is last month’s performance.
 


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Global Developments

1. The US dollar has closely tracked market expectations for a Republican sweep in the US. A different outcome could result in a reversal.
 
Source: BofA Global Research  
 
2. Here is last month’s performance data.
 
Currencies:
 

 
Bond yields:
 

 
Equity indices:
 

 
USD-denominated Equity ETFs:
 


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Food for Thought

1. Birth rates in the US and Mexico:
 
Source: @financialtimes   Read full article  
 
2. Millennial 401-k access and participation rates by income bracket:
 
Source: Barron’s   Read full article  
 
3. US voter enthusiasm:
 
Source: Gallup   Read full article  
 
4. Voting-age millennials and younger vs. older generations:
 
Source: Deutsche Bank Research  
 
5. The spookiest states:
 
Source: QR Code Generator  
 
6. Friends, please be careful driving today.
 
Source: The Washington Post   Read full article  

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Have a great weekend!


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