Summary: The S&P 500 ended slightly lower at 4,258, while calm returned to the Treasury market and crude oil prices continued to decline. Brent crude dropped below $85 per barrel, its lowest since August. The focus shifted to the US employment report and the upcoming earnings season. The 5-30-year yield curve steepened, suggesting that the recent long-end Treasury sell-off is driven by increased demand for term premiums rather than intensification of the expectation of “higher for longer” Fed policy. The US dollar weakened as Treasury yields stabilised ahead of the US jobs report, with non-farm payrolls expected at 170k compared to the previous 187k.
The Saxo Quick Take is a short, distilled opinion on financial markets with references to key news and events.
US Equities: The S&P 500 hovered above its 200-day moving average, ending the session 0.1% lower at 4,258. The Nasdaq 100 slid 0.4% to 14,723. The return of calm in the Treasury market and the continuous decline in crude oil prices helped. Meanwhile, the focus is on today's employment report and the start of the earnings reporting season next week.
Fixed income: Calm returned to the Treasury market, with the 10-year yield trading in its narrowest range in more than two weeks to finish the session 1bp lower at s4.72%. There was mixed performance across the curve, with the 5-year yield dropping the most by 4bps, and the 30-year yield rising the most by 3bps, bringing the 5-30-year yield curve steepened by 7bps to 20bps. The steepening of the 5-30-year part of the curve lends credence to the notion that the sell-off in the long end of the Treasury curve is more related to an increase in the demand for term premium rather than any rise in expectations of a "higher for longer" Fed policy, which should hit the 5-year segment more. For today, the focus is on the employment report.
China/HK Equities: The Hang Seng Index pared nearly all the gains from the morning session rally to finish 0.1% higher at 17,214. Sunac received approval from a court in Hong Kong for its debt restructuring plan, becoming the first major Chinese developer to secure court approval. This news lifted the share prices of other Chinese developers. Beer stocks had a notable performance due to headlines about beer consumption in the mainland during the Golden Week.
FX: Broad-based weakness in the US dollar as Treasury yields retreated further in the wait for US jobs report due today. NZD was the top performer, with NZDUSD heading above the 50DMA to 0.5970. AUDUSD also pushed higher, but unable to break above 0.6360 for now. Oil price declines put pressure on CAD and NOK, sending NZDCAD and NZDNOK surging as noted in yesterday’s FX note. EURUSD attempting a push above 1.0550 while USDJPY stays near 148.40.
Commodities: Oil prices extended their decline with Brent also below $85/barrel now and the lowest since end-August. There were no fresh catalysts for the move, expect demand concerns starting to be a big focus going into Q4. Gold is finding some stability in the $1820-area and US jobs report and its reaction on bond yields could be key. Wheat futures extended gains from last week’s low with export demand underpinning.
Macro: Fed’s Daly (2024 voter) showed increasing confidence in the lack of need for further hikes, citing the recent backup higher in yields (tightening financial conditions) removing the need to do more on hikes. Initial jobless claims data rose marginally to 207k from 205k in the week ending September 30th, beneath the expectations of 210k. Focus now shifts to September NFP report due today.
Macro events: US Jobs Report (Sep) exp 170k vs. 187k prior – read full preview here; Canadian Jobs Report (Sep) exp 20k vs. 39.9k prior
In the news:
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