• US October non-farm payrolls +12K vs +113K expected
• Comment from BLS on the US Hurricanes
• US ISM October manufacturing PMI 46.5 vs 47.6 expected
• S&P Global October Canada manufacturing PM 51.1 vs 50.4 prior
• Baker Hughes Oil rigs 479 down -1 on the week
• US construction spending for September 0.1% versus 0.0% expected
• Atlanta Fed GDPNow growth estimate for Q3 growth comes in at 2.3% vs 2.7% last
• Geopolitics: US truce efforts on Lebanon fail ahead of the election
• US S&P Global final October manufacturing PMI 48.5 vs 47.8 prelim
• China loosens rules for foreign investors in equities
• November financial market seasonals: Japanese FX officials won’t want to read this

Markets:

• Gold down $10 to $2734
• US 10-year yields up 10 bps to 4.38%
• WTI crude oil up 20-cents to $69.46
• S&P 500 up 0.4%
• GBP leads, CHF lags

The crosscurrents in markets continued on Friday as we count down to the US election. It’s tough to separate moves based on economic data from election de-risking and election positioning. The tension is undoubtedly ramping up and betting odds shifted back towards Harris more-recently, adding a wrinkle.

The main event of the day was non-farm payrolls and the reading was just +12, far short of +113K expected and the US dollar immediately fell hard, 40 to 90 pips, with USD/JPY hit particularly hard. However all those US dollar declines were eventually erased.

Part of that was because the market wasn’t convinced that the jobs market is deteriorating, despite at -112K two-month net revision. The other factor was another rapid rise in Treasury yields, from a low of 4.22% post-data to 4.38% and a close on the highs. That move also helped to sap risk and weighed on commodity currencies and the euro.

It’s not entirely clear what’s driving the bond move but the pain in UK bond markets following the UK budget is topical, especially in scenarios where one party sweeps congress. But it could also be as simple as uncertainty and de-risking around a wide possible range of election outcomes. Finally, the prices paid component of the ISM manufacturing survey was hot, which may have ignited some inflation fears (though I find that a stretch).

Have a great weekend. Rest up because next week could be crazy.

This article was written by Adam Button at www.forexlive.com.

• S&P 500 +0.4%
• Nasdaq Comp +0.8%
• Russell 2000 +0.6%
• DJIA +0.7%
• Toronto TSX Comp +0.4%

On the week:

• S&P 500 -1.4%
• Nasdaq Comp-1.5%
• Russell 2000 flat
• DJIA -0.2%
• Toronto TSX Comp -0.8%

That’s two weeks of declines following a six-week rally.

This article was written by Adam Button at www.forexlive.com.

The overwhelming line of thought is that we would never get back to ZIRP or negative interest rates and that the neutral rate was higher. I’ve yet to hear a compelling reason for why that is, particularly in a world that’s about to be disrupted by AI.

Yes, there’s the deglobalization talk but that’s vastly overstated and I don’t find any demographic arguments compelling. In July, I argued that it was time to buy bonds because of all this and they then embarked on a major rally. Now most of that has come undone on fiscal worries ahead of the election but everything since then has highlighted falling inflation.

Some of the strongest evidence this week came from Switzerland, where year-over-year inflation fell to +0.60%. Back in September, the SNB slashed its inflation forecast for 2025 to 0.6% from 1.1% as it cut rates. This year’s inflation was also trimmed to 1.2% from 1.3%.

In light of today’s data, that’s looking far too high. The next meeting is December 12 so much can change (particularly energy prices and FX) but rates are at 1.00% and a 50 basis cut is on the table and I’d argue it’s advisable. Market pricing is still only 28% but by March, pricing is down to +0.30%.

Deutsche Bank argues that the the
odds of negative rates are rising again. They also highlight scenarios where we get trade frictions and I can see risk off scenarios where the franc rises materially.

It’s also not just Switzerland as Europe is struggling more broadly and DB argues that inflation isn’t a problem.

„Despite this week’s small upside inflation
surprise in the Eurozone, it is hard to see broader Euro-area inflation forces
as anything but disinflationary given the very soft inflation numbers coming in
throughout the smaller European economies recently (Sweden, Norway, and today
Switzerland).“

The one place with still-strong growth is the USA but if we end up with some fiscal tightening coming out of the election, then it could also see lower inflation. At some point, growth will also hit a bump and given what we’re seeing globally, we could easily be tipped back into a world of very low, or negative rates again.

This article was written by Adam Button at www.forexlive.com.

The US dollar rose 15 pips against the loonie today to 1.3950, which is the first time at that level since 2022.

The next level to watch is 1.3978, as a rise above that level would be the highest since the pandemic. And other than a brief spike in the pandemic, and a spike in the 2016 oil collapse, USD/CAD hasn’t been sustained at these levels since 2003.

The problem for the loonie is that Canada’s economy is struggling and the long-term picture is worsening. The housing market is impaired and new home sales are slowing due to high interest rates. Even if the Bank of Canada cuts, longer-term fixed rates (5 years are standard in Canada) have been rising. With that, we’re probably already at the bottom for standard Canadian mortgages and there is no sign of rising demand.

Another driver for Canada has been population growth, as this chart highlights.

That’s about to go into reverse as Canada’s governing Liberals have pledged a declining population in 2025 and 2026. Now some people are certainly skeptical about that but in every scenario, the pace of entries into the country materially declines and rising anti-immigration sentiment likely keeps it that way through the decade.

Some hope for the loonie comes from China stimulus and natural resources prices but those risks run both ways.

In the shorter-term, the risk trade dictates what happens next with the loonie. Right now the market is obviously on edge about the US election. Not many trades around it are clear but Harris is certainly better for Canada that Trump. She lived for many years in Montreal and wouldn’t be looking to renegotiate NAFTA or impose tariffs.

That said, there are certainly scenarios with a divided Congress and broad equity market selling that hurt the market mood and lead to loonie weakness.

There is a good argument to be patient in any election scenario and wait for the technicals to unfold as a break of 1.4000 would target 1.4500.

I talked about these themes in detail with BNNBloomberg earlier in the week.

This article was written by Adam Button at www.forexlive.com.