Fed keeps rates unchanged

In a unanimous decision the FOMC elected to keep interest rates unchanged for a second consecutive time yesterday, leaving the upper bound at 5.5%. The decision to keep rates on hold comes amid a recent string of robust economic data, including strong Q3 GDP driven by continued household spending. However, in the press conference after the announcement, Fed chairman, Jerome Powell struck a more dovish tone, noting that the recent surge in treasury yields had caused financial conditions to tighten “significantly” and that the full effect of previous rate hikes were yet to be felt. Powell left the possibility of a further rate hike on the table, noting that decisions will be made on a “meeting-by-meeting” basis, with a wealth of data – including two inflation and employment reports - due to be published before the Fed’s next decision on Dec 13.

Private sector payrolls rose 113k in October, according to the ADP employment measure. The October print was higher than the very weak reading of 89k seen in September, but lower than consensus expectations for a 150k gain, pointing to some degree of moderation in the labour market. There were also some signs of slower wage growth, with wage increases for both those remaining in their jobs and those changing jobs rising at their slowest pace since 2021.

JOLTS data showed a surprise rise in US job openings in September, increasing to 9.55m from a downwardly revised figure of just under 9.5m in August. Despite the unexpected uptick in openings, there were still some signs of a wider cooling. The September rise was dominated by an increase in vacancies in the accommodation and food services, and art, entertainment and recreation sectors, possibly in response to strong consumer spending activity over Q3. In contrast, openings in high skilled sectors saw increasing rates of decline. The quits rate remained unchanged at 2.3% for the third month in a row - its lowest level since early 2021 - suggesting that despite the rise in openings, confidence about finding another role hasn’t increased.

The US ISM manufacturing PMI fell further below the neutral-50 mark in October, declining to 46.7 from 49 the month prior. Consensus expectations had been for the print to be unchanged on the month. There was a material decline in the new order sub-component, which fell to 45.5 from 49.2 in September. The employment measure also fell sharply, dropping to 46.8 in October from 51.2, suggesting there may be declines in manufacturing payrolls to come.

Today’s key economic data and events

• 16:00 UK BoE bank rate forecast: 5.25%
• 16:30 US Initial jobless claims (w/e Oct 28) forecast: 210k
• 18:00 US factory orders (Sept) forecast: 2.3% m/m

Fixed Income

• There were large falls in US Treasury yields on Wednesday, as markets reacted to both the Fed’s decision to keep rates on hold and the Treasury Department’s announcement that there would be a deceleration in the pace of longer-run debt sales. The 2yr UST yield dropped 14bps to 4.9436% while the 10yr yield fell 20bp to 4.7341%.
• There were also declines across European sovereign bond yields, with the 10yr Gilt yield falling 1bps to 4.496% and the 10yr German Bund yield declining 4bps to 2.762%. 

FX

• Both the Euro and Sterling saw very small declines against the dollar on Wednesday. EURUSD fell 0.05%, to 1.057. while GBPUSD fell 0.01% to 1.2152. USDJPY fell 0.48% to reach 150.95.
• Commodity currencies were stronger against the dollar. AUDUSD rose almost 0.9% to 0.6393 and NZDUSD gained 0.36% to 0.5846. USDCAD fell 0.14% to 1.3856.   

Equities

• US Equity markets rallied on the back of the Fed decision on Wednesday. The Dow Jones gained 0.67%, the S&P 500 rose 1.05% and the Nasdaq increased 1.64% on the day.
• Gains continued across major European equity indices, as bond yields declined. The Eurostoxx 50 gained 0.75%, the DAX rose 0.76% and the CAC 40 increased 0.68%. The FTSE 100 also gained on the day, rising 0.28%.
• Locally, the DFMGI gained 0.4% while the ADGI rose 1.03%.

Commodities

• There were falls in both Brent and WTI on Wednesday. Brent declined sharply, falling 3.18%, to USD 84.63/b and WTI fell 0.72% to end at USD 80.44/b.