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Payrolls Day, Europe’s Covid Wave, Chinese Developer Debt – What’s Moving Markets


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By Geoffrey Smith — It’s payrolls day, and hiring is expected to have bounced back smartly in October from an eight-month low in September. Average earnings and participation in the labor force will also be key variables when the headlines hit at 8:30 AM ET. Europe is catching Covid again, and China now has health measures in place in nearly half of its provinces as it defends its zero-tolerance policy. Another big Chinese developer has also run into trouble with its debts – and not just the debts held by distant foreigners. Stocks are set to edge higher at the open, but Peloton and Uber (NYSE:UBER) will be under pressure after weak updates late on Thursday. Here’s what you need to know in financial markets on Friday, 5th November.

1. Payrolls day

The official monthly labour market report for the U.S. is due out at 8:30 AM ET (1230 GMT), amid signs that the jobs outlook improved markedly in October as the economy put the summer wave of Delta-variant Covid-19 behind it.

Analysts expect nonfarm payrolls to have risen by 450,000 through the middle of last month, up from an eight-month low of 194,000 in September, where recent experience also suggests an upward revision is quite possible. However, attention will also focus on the participation rate of people in the workforce, which has failed to recover in parallel with overall employment, and on earnings growth, which is expected to accelerate to 4.9% year-on-year from 4.6% in September.

Weekly jobless claims numbers suggest that the labour market’s momentum has remained intact since the cut-off point for the payrolls report. Initial jobless claims posted a second straight post-pandemic low on Thursday.

2. Europe catches Covid, again

The World Health Organization warned of as many as 500,000 deaths from Covid-19 this winter in the Europe region (which includes Russia), as new infection and hospitalization rates spike across much of the continent.

Seasonality, waning immunity from the first wave of vaccines and, most of all, a sustained high level of resistance to vaccination appear to be driving the latest wave, which is dominated by the Delta variant. New infections and deaths, relative to population, are highest in eastern Europe, where vaccination rates are lowest. In Russia, deaths are running at over 1,100 a day and new infections are some 40% above their previous peak last winter.

Germany and the Netherlands too are seeing new infections at 11-month highs, raising fears of fresh lockdowns across those countries. The developments come as the Eurozone’s industrial sector battles a sharp slowdown due to supply chain disruptions. German industrial production fell for a second straight month in September, while French output also fell and Spanish output growth slowed to a crawl. Eurozone retail sales also surprisingly fell in September, by 0.3%.

3. Stocks set to open higher; Uber and Peloton under pressure

U.S. stocks are set to open mostly higher, on course to end the week at or close to new record highs, as confidence in the strength of the economy combines with the reassurances given by Federal Reserve Chairman Jerome Powell about the pace of interest rate hikes.

By 6:20 AM ET, Dow Jones futures were up nine points, or less than 0.1%, while S&P 500 futures were up a clearer 0.2% and Nasdaq 100 futures were up 0.4%

Stocks likely to be in focus later include Peloton Interactive (NASDAQ:PTON), which tumbled by nearly one-third after hours on Thursday after slashing its sales forecasts. Uber will also be under pressure, albeit not as extreme, after reporting a $2.4 billion net loss that overshadowed its first (heavily adjusted) profit at the basic operating level.

4. Chinese developer woes spread, as does Covid outbreak

Kaisa Group (HK:1638) opened a new front in the battle to keep China’s financial system steady. The real estate developer missed payment on a handful of wealth management products which, in contrast to the dollar bonds held largely by overseas and professional entities, are broadly held by domestic retail investors.

Kaisa is the sector’s third-largest issuer of international debt and already has a history of having to restructure it, having become the first Chinese issue to do so five years ago.

Worryingly, the missed payments come despite no sign of financial stress in the company’s accounts, which easily satisfied the authorities three ‘red line’ metrics on leverage in its latest disclosures.  Elsewhere, The Wall Street Journal reported that China Evergrande had sold two private jets to raise $50 million to cover the interest payments that it had initially missed, and JPMorgan (NYSE:JPM) cut its growth forecasts for China for the fifth time since August.

5. Oil steadies after post-OPEC slide

Crude oil prices steadied after sliding on Thursday in response to guidance from the OPEC+ meeting, which as expected talked up the risks of a renewed supply overhang next year.

With evidence of rising Covid-19 cases in Europe and a widening outbreak in China that is again causing extreme public health measures in nearly half of its provinces, the market has been more inclined to heed such warnings.

By 6:30 AM, U.S. crude futures were up 1.1% at $79.66 a barrel, while Brent crude was up 0.6% at $81.02 a barrel. The Baker Hughes rig count and CFTC positioning data round off the week later.

Payrolls Day, Europe’s Covid Wave, Chinese Developer Debt – What’s Moving Markets

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