It’s Always About the Payrolls
Non-farm payrolls for October will be released on Friday with market expecting an increase of 110k units – such an increase would be the smallest since the end of 2020
- Final number will be negatively impacted by flooding/power disruptions caused by Hurricanes Helene and Milton and by ongoing strikes at Boeing
- This Friday’s employment report will be the last the Fed sees before next policy meeting – with the market pricing a 25bp cut next week. It will take a surprising number to knock them off course
- With the US presidential election next week, a weak number could give an additional push to Donald Trump and the Republicans
Japan’s Politics Trouble the Yen
The JPY is the worst performing of G10 currencies this year, and it dropped as much as 1% after the country’s ruling coalition failed to win a majority in parliament – adding to the intense selling pressure due to the wide interest-rate differential with other major economies.
Still, the yen has key strengths: a record ($20 billion) current-account surplus, deep liquidity and relatively low inflation, as well as an interesting store of value ahead of elections and geopolitical tensions.
In addition, the BOJ is the only developed-market central bank that is currently even close to raising interest rates as its next policy move.
Finally, market positioning suggests investors are at least less bearish on the currency compared with earlier in the year.
US Q3 Earnings Season Update
Overall, 37% of companies in the S&P 500 have reported results for Q3 2024. Of these companies, 75% have reported EPS above estimates, below the 5-year average of 77% but equal to the 10-year average of 75%.
In aggregate, companies are reporting earnings that are 5.7% above estimates, below the 5-year (8.5%) and 10-year (6.8%) averages.
The blended earnings growth rate for the third quarter is 3.6% today, compared to an earnings growth rate of 4.3% at the end of the third quarter.
Eight of the eleven sectors are reporting year-over-year growth, led by the IT and communication services. On the other hand, three sectors are reporting a year-over-year decline in earnings, led by energy and industrials.
Source: FactSet
Climbing Rates, Cooling Cuts
30-year fixed rate mortgages hit 6.61% last week, the highest since July, following a rise in Treasury yields and resilient economic data.
- Rate Increases: Both 30-year and 15-year rates are up over 70 basis points from September lows, underlining persistent inflationary pressures.
- Market Impact: The steady rise impacts affordability, dampening expectations for rapid Fed cuts as economic demand remains strong.
- Fed Outlook: With inflation still a concern, the Fed is expected to take a cautious approach on rate adjustments in the near term.
Monitoring factors like mortgage rates, especially with interest-sensitive assets, can help with allocation and timing, especially amid inflation concerns.
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