US Treasuries rallied in earnest on Friday, as more solid job growth was not enough to hurt bonds in the absence of wage pressures. Also increased tensions in Ukraine supported bonds ahead of the weekend. The 10-year yield slumped by 9bp to around 2.30%. The German 10-year yield ended the day down by a more modest 1bp. The moves in intra-Euro-area spreads were mostly quite limited at the end of the day.
Core bond yields should have some more room to fall today. While the calendar looks rather light, further rise in geopolitical tensions could easily offer bonds another boost. US Treasuries are also likely to see demand ahead of tomorrow’s Veterans Day holiday.
European equities headed lower on Friday, and the Stoxx 600 lost 0.54%. In the US, S&P 500 closed almost flat (up 0.04%, though the index hit new highs earlier in the day). Asian equities are trading mixed to higher this morning. Chinese October export data released over the weekend beat expectations, but imports were weaker. CPI for the same month, out this morning, was in line with expectations and unchanged compared to September at 1.6% y/y, while PPI data continue to point to soft price pressures. European equities are set to open slightly higher.
US payrolls grow at a brisk pace – average earnings do not
US payrolls growth including revisions was not that far from expectations. Payrolls growth came in at 214k vs an upward-revised 256k, while the prior two months saw a net revision of 31k. The unemployment rate fell from 5.9% to 5.8% (actually from 5.94% to 5.76%) after the household survey showed a strong 683k creation in jobs. Average hourly earnings growth was muted once again at 0.1% m/m, below expectations.
Overall, the weak wage developments still leave the Fed room to be patient in terms of policy tightening, but the quickly diminishing slack in the labour market points to also wage pressures ahead.
Catalonia voted yes – or something like that
More than eighty percent of the more than two million Catalans taking part supported independence in Catalonia’s symbolic vote yesterday. The regional government projected turnout would total about 2.3 million out of the total 5.5 million eligible voters, but the results were distorted, as anti-independence parties largely boycotted the vote. After the vote, Catalan President Mas declared Catalonia deserved to hold a normal legal and binding referendum on the matter. Earlier in the weekend, Prime Minister Rajoy had played down the significance of the vote.
The Catalan independence issue is unlikely to be resolved for good any time soon. Early regional elections continue to look likely, and the Catalan government parties will likely try to turn that vote into a measure of support for independence. Spanish government bonds have not felt much pressure due to the issue so far, but increased tensions between Catalonia and the central government continue to have potential to cause losses for Spanish bonds.
Finally a positive sign from the Finnish economy
Finnish export data surprised big time in September, which change the Q3 activity picture materially. GDP now looks likely to have increased in Q3. The monthly export data is hugely volatile and while the recent number now left also the trend pointing upwards, one should not get too carried away. Even though the data was certainly a welcome surprise amidst all the gloom, the Finnish economy continues to face severe headwinds and the outlook remains gloomy.
Euro-area GDP, US retail sales and Chinese data
This week’s calendar looks considerably lighter compared to last week. The highlights include the Chinese October data package on Thursday and Euro-area Q3 GDP as well as US October retail sales on Friday. Euro-area GDP likely stagnated in Q3, and Germany might even have ended up in another technical recession, while US retail sales should see a rebound after the disappointing September. In the UK, BoE inflation report will gather interest on Wednesday.
Today’s calendar looks light as well. Italian September industrial production will be released at 10:00 CET, while BoE’s Carney will speak at 7:45 CET and the ECB’s Mersch at 19:00 CET. In addition, the ECB will release its covered bond purchase data at 15:30 CET.
US auctions starting already today
Because of tomorrow’s Veterans Day holiday, US auctions will start already today with USD 26bn of 3-year notes. USD 24bn of 10-year notes will follow on Wednesday and USD 16bn of 30-year bonds on Thursday.
In the Euro area, Germany will auction its 2030 inflation-linker for EUR 1bn tomorrow, while the country will sell a new 2-year benchmark for EUR 5bn on Wednesday. Italy will sell bonds on Thursday.
Coupon and redemption payments from EUR government bonds will amount to some EUR 17bn this week. These will stem from Italian bonds.
Nordea