Daily Market Color

Steady Growth Displayed in Employment Data, Markets Quiet as Election Looms

October’s labor report revealed steady job growth and increasing wages that characterize the proper environment for a rate hike by the Fed come December.  Nonfarm payrolls for the month came in below expectations at +161,000, but were largely offset by a +35,000 revision to the prior month’s reading.  As per the Labor Department, the October job gains were primarily attributed to the construction, healthcare, and professional and business services sectors.  The unemployment rate shifted -0.1% to 4.9%, reversing the increase from September and floating near the level deemed by economists as full employment.  Also encouraging was average hourly earnings, which rose 0.4% MoM, bringing the YoY growth to its highest mark since the 2008 financial crisis at 2.8%.  In addition to the labor data, the US trade deficit reportedly fell to one and a half year lows in September after a combination of a -1.1% shift in imports and a 0.6% rise in exports.  The largest reductions in deficit were against China (-$1.4 billion) and the EU (-$3.7 billion) during September.            

Despite the on-track employment figures, markets remained tepid for the majority of the day as concern over the potential outcome of next week’s presidential election are taking center stage.  With indicative polls tightening over the past week, investors are getting flashbacks of the Brexit vote, where extreme levels of volatility ensued after the surprise decision to leave the EU.  The potential impact of a Trump presidency on markets remains unknown, increasing the demand for save haven assets heading into the weekend.  US Treasurys rallied 1-4 bps throughout the day with the yield on the 10-year note touching as low as 1.78%.

Overseas, the Turkish lira reached a record low against the dollar amid widespread political turmoil in the country.  Overnight, 11 members of the pro-Kurdish People’s Democratic party (HDP) were detained, including the party’s co-chairs, Selahattin Demirtas and Figen Yukesedag.  The arrests were issued by President Erdogan, who was able to assume emergency power following a failed coup back in July and has recently accused several members of the opposition party of supporting a Turkish insurgence group called the Kurdistan Worker’s party.  The situation unraveled around 1:30am local time with Demirtas sending out a tweet stating that the police were at his door and “have an order to detain me by force.”  Turkish authorities have since shut down nationwide access to all social media platforms along with the WhatsApp messaging service.  The lira fell over 1% vs. the dollar on the day, depreciating to all-time lows of 3.1522 TRY per dollar.

All three major U.S. stock indexes finished down nearly 0.25%, marking the ninth consecutive losing session for the S&P 500, while Treasury yields/swap rates fell 1-4 bps across the curve.  Crude oil prices whipsawed throughout the day, plunging initially after reports stated that Saudi Arabia threatened to raise output if other OPEC members didn’t agree to cap production, and then paring some losses after the OPEC secretary general publicly denounced the rumor.  In the end, WTI crude lost 1.2% on the day to $44.10/barrel while Brent crude dropped 1.60% to $45.60/barrel.   

Have a great weekend.     

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