Bond yields fall further
Friday’s employment (payrolls) report in the US came in on the softer side of the consensus forecast, reinforcing market expectations that the Fed is probably finished raising interest rates and, moreover, that it will lower them by more than previously anticipated in 2024. This in turn prompted a decline in bond yields and an extension of the rally in equity markets, while the dollar lost ground to the euro and sterling and is trading at $1.0730 and $1.2380 respectively this morning. The pound has also advanced against the single currency, to around 86.7p.
Sovereign bond yields headed further south on Friday, falling by around 10bps in the case of US, UK and German 10-yields to take declines over the week to 20-25bps. In equity markets, the S&P 500 added around 1%, bringing it gains on the week to almost 6%, while European stocks advanced by almost 4% last week albeit closing only marginally higher on Friday.
The US economy added 150k jobs in October, less than the consensus forecast of +180k, while employment gains for August-September were revised down by 101k. The unemployment rate nudged up to 3.9% last month and has now risen by half a percentage point since January this year (notwithstanding strong economic growth), while hourly earnings growth eased to 4.1% year-on-year, continuing the gradual downward trend in place over the past year or so.
Fed member Bostic says he thinks interest rates are currently at a level that “will be sufficiently restrictive to get us to…2% inflation” without the economy “seeing a recession,” while noting that rate cuts are “still a ways off.”
Bank of England Chief Economist Pill says “more persistence in wage and price dynamics” means the central bank “can be less sanguine” about a slowing economy reducing inflation, adding its main concern “is ensuring we do enough…to bring inflation on a sustainable basis back to target.”
Exchequer returns show corporation tax receipts in Ireland fell year-on-year for a third consecutive month in October (-45% on October last year), reflecting the weakness of exports from the multinational-dominated pharmaceutical sector in particular. Total tax receipts were down 16.4% y-o-y in October as a result, although for the ten months to end-October they were 4% ahead of the same period in 2022, driven by income tax (+7.6% y-o-y) and VAT (+10% y-o-y).
Economic data due this week include Euro area producer prices and retail sales on Tuesday and Wednesday respectively, while the ECB publishes its latest survey of consumers inflation expectations on Wednesday as well. In the UK, the RICS housing survey is due on Wednesday and GDP for September and Q3 on Friday.
A large number of Fed members are scheduled to speak over the course of the week, while Bank of England Governor Bailey addresses a Central Bank of Ireland conference on Wednesday.