Storms, Strikes Muddy US Employment Data

For the week ending 1 November 2024

As of midday Friday, global equities were lower on the week as investors continue to fear that there is no quick payday on the horizon despite a capital spending splurge by megacap tech companies. The yield on the US 10-year Treasury note rose 11 basis points from a week ago to 4.30% despite soft US payrolls. The price of a barrel of West Texas Intermediate crude oil was little changed from a week ago at $70.80, having recovered from an early week slide to $67.00. Volatility, as measured by futures contracts on the Cboe Volatility Index (VIX), rose to 19.8 from 18.75.

MACRO NEWS

US payrolls creep up amid storms and strikes

US nonfarm payrolls rose by only 12,000 in October, missing already muted expectations. The data were likely distorted by several hurricanes and by a machinist strike against Boeing (which subtracted 44,000 jobs), though the Bureau of Labor Statistics said it was unable to quantify the effects of the storms. The prior-two-months data were revised lower by 112,000. All in all, we are seeing a noisy set of numbers that will likely be taken with a grain of salt given that other labor market data, such as weekly jobless claims, don’t portend weakness. Futures markets have fully priced in a 0.25% cut from the US Federal Reserve next week and almost fully anticipate another at the December meeting.

US Q3 growth solid

The US economy grew at a 2.8% annual pace in the third quarter amid very strong personal consumption. A decline in net exports was a drag, but some attributed a sharp rise in imports to stockpiling ahead of what turned out to be a brief strike by East Coast dockworkers. The core PCE price index fell to 2.2%.

Focus in China turns to NPC

The Standing Committee of the National People’s Congress will meet next week in Beijing with the goal of strengthening macro policies to expand domestic demand and reach this years GDP growth target, Vice Finance Minister Liao Min told Bloomberg News this week. The details on any new fiscal stimulus will come only after these meetings are concluded, he said. However, analysts expect China’s stimulus package to have a stabilizing effect rather than dramatically boosting growth. Upwards of ¥10 trillion ($1.4 trillion) in new bond issuance over the next few years is expected, with more likely if former US President Donald Trump retakes the White House, given the expected economic drag from a ratcheting-up of trade restrictions. An early sign of economic stabilization was seen this week as China’s manufacturing purchasing managers’ index rose to 50.1 in October from 49.8 in September, its first expansion since April, while residential property sales in October rose year-on-year for the first time in 2024.

UK yields rise after tax-and-spend budget

The yield on two-year UK gilts rose more than 0.25% after Chancellor of the Exchequer Rachel Reeves unveiled the Labour Party’s first budget since taking office in July. The plan will increase taxes by £40 billion annually by 2030 and spending by £74 billion. A looser definition of debt will allow the government to borrow an extra £100 billion in coming years, ostensibly to fund infrastructure spending. A hike in the employer’s portion of the National Insurance tax will rise, which economists fear could hamper employment and wage growth. On Friday, Moody’s and S&P both expressed skepticism over the shifting debt definition.

QUICK HITS

The Institute for Supply Management’s US manufacturing index fell to 46.5 in October from 47.2 in September.

In the United Kingdom, the manufacturing purchasing managers’ index slipped to 49.9 in October from 50.3 in September. In Japan, manufacturing PMI rose to 49.2 from 49.0. With markets closed on Friday for All Saints Day, Europe will report PMIs on Monday.

The US employment cost index rose 3.9% year over year in Q3, down from Q2’s 4.1% pace.

US personal income rose 0.3% in September. Spending rose 0.5%. Core PCE, the Fed’s preferred inflation measure, rose 2.7% year over year, slightly above forecasts.

The United States said this week that as many as 8,000 North Korean troops are ready to join Russian forces fighting in Ukraine.

Japan’s unemployment rate fell to 2.4% in September from 2.5% in August.

Boosted by investment, immigration and tourism, Spain’s economy grew even faster than that of the US in Q3, expanding 3.4% year over year. Meanwhile, the eurozone as a whole grew 0.9% from a year ago, boosted by one-offs such as the Paris Olympics.

Canada’s economy grew at a 1.3% rate in August, slower than the 1.5% pace the month before.

Oil prices fell back after Israel spared Iran’s oil production facilities during reprisals for Iran’s 1 October missile attack on Israel. Prices recovered somewhat later in the week on reports that Iran is preparing to strike Israel again via its proxies.

Japan’s ruling coalition led by the Liberal Democratic Party fell short of a majority in last Sunday’s lower house elections. Adding an additional party to the coalition to reach a majority will probably result in a boost in fiscal stimulus next year. Amid the political uncertainty, the Bank of Japan held interest rates steady Thursday.

On Friday, Argentina’s central bank lowered its benchmark interest rate to 35% from 40%.

EARNINGS NEWS

With about 70% of the constituents of the S&P 500 Index having reported for Q3 2024, blended earnings per share (which combines reported data with estimates for those that have yet to report) shows that earnings rose around 5.1% compared with the same quarter a year ago, according to data from FactSet. Sales growth is up 5.2% year over year.

THE WEEK AHEAD

Next week’s highlights include Tuesday’s US general election, a meeting of China’s National People’s Congress Standing Committee from Monday through Friday and the Fed meeting on Wednesday, at which a 0.25% rate cut is expected.