US data reinforced expectations of a soft landing, with the labour market cooling but not falling apart, while demand remains solid in the services sector. In Europe there were further signs that the worst of the slowdown may be in the rear-view mirror, but rates have almost certainly peaked. Markets picked up the policy-easing ball and ran with it, pulling expectations of next years’ rates back near the recent lows.
Mixed macro news from China leaves equities at the lows
China’s attempts at reinforcing economic confidence got a mild slap in the face from Moody’s, which cut its credit outlook on concerns over increasing government support to financially stressed local governments and state-owned enterprises. On a more constructive note, China’s private sector focused Caixin services PMI rose more than a point in November to 51.5, exceeding estimates and lifting the composite PMI to its highest level since August. According to Caixin, “Optimism in the services industry rebounded” after a “stronger upturn in total new business midway through the final quarter of the year”.
Equities responded more to the negative news though, with the China Enterprises Index sliding 1.6% to the lowest level in a year.
ECB hawk virtually rules out a rate hike
Early ECB rate cut hopes received a further boost yesterday by comments on the “remarkable” fall in eurozone inflation by Isabel Schnabel, one of the most hawkish and well-respected members of the Executive Board. She said November inflation print “has made a further rate increase rather unlikely” although she warned against declaring victory too early and noted that data suggest the economy is “bottoming out”, with the disinflation process expected to slow.
Hopes of a sustained recovery were reinforced by the November services PMIs from Spain and Italy (who do not release preliminary PMIs) which helped lift the revised eurozone services PMI half a point above the earlier estimate to 48.7. Spain’s services PMI was little changed from October at 51 but the Italian services PMI climbed almost 2 points to 49.5.
US job openings suggest better balance in labour market
US private-sector job openings slumped to 8.7m in October according to the JOLTS survey, the lowest since March 2021 and providing further evidence of cooling labour demand during a month when hiring was much weaker than expected. The sector with the largest decline in openings was the normally less cyclical healthcare and social assistance, where openings fell by 236K, followed by finance and insurance with 168K fewer vacancies.
The ratio of job openings to unemployed fell from 1.47 in September to 1.34, which was still above the pre-pandemic high, although legitimate questions have been asked over the accuracy of the data due to low survey response rates. Only around 30% of the 21K establishments surveyed now respond, covering a tiny proportion of the 122K businesses in the Establishment Survey.
On a Beveridge curve mapping the rate of job openings as a percentage of the workforce (5.3%) against the unemployment rate at the time (3.9%), the labour market looks more closely in balance, and roughly in line with what might have been expected had the post-GFC expansion continued uninterrupted by the pandemic. The quits rate (reflecting voluntary separations, usually for a better job) was unchanged for a fourth consecutive month at 2.3%, suggesting pay growth should stabilise at around its current rate.
Service sector expansion remains intact
The ISM services index climbed almost a point to 52.7 in November, with its internals pointing to a continued solid pace of services growth. The New Orders index was unchanged at 55.5 and the Business Activity index climbed a point to 55.1. Supplier Deliveries was the only one of the four component indices that was below the 50 threshold at 49.6, but was 2.1 points higher than October, signalling slightly longer delivery times.
The Employment index – which has a loose and unreliable relationship with payrolls - inched up half a point to 50.7, while the Prices index was .3 points lower at 58.3, suggesting headline inflation should continue to moderate.
Commenting on the report, ISM Chair Anthony Nieves said, “the services sector had a slight uptick in growth in November, attributed to the increase in business activity and slight employment growth” although respondents remain concerned by “rising labour costs” and “employment-related challenges.”
Markets
Fixed income
Volatility in fixed income continued, with bull-flattening move in curves as the yield on the ten-year treasury sank 9 bps to 4.16% while the two-year closed at 4.58% (-6bps).
Equities
Commodities
Today’s macro agenda
Germany factory orders October, eurozone retail sales October
US ADP employment change November, MBA weekly mortgage applications
Disclaimers
Author:
This communication is by Mariana UFP LLP external contractors, under the responsibility of Rajvinder Minhas, senior manager of Mariana UFP LLP. Mariana UFP LLP is authorised in the UK by the FCA (FRN 551170).
Please find here the methodology used to produce the above-mentioned communication.
Conflict of Interest: None.
Mariana UFP LLP doesn’t hold positions in any entity external to the MUFP group. Mariana UFP LLP is a regulated inter-dealer broker, and therefore might be engaged in agency transactions linked with the above-mentioned financial instruments.
Disclaimer
In accordance with Delegated Regulation 2016/958 article 8, this communication has been prepared by Mirada Asset Management Limited, incorporated in 71-73 Shelton Street London, WC2H 9JQ United Kingdom, disseminated for the first time on (see title). Mariana UFP LLP (“MUFP”) is regulated is authorised & regulated by the FCA (FRN 551170).