Daily Market Outlook - Wednesday, Nov. 12

By Patrick Munnelly of Tickmill

close-up photo of monitor displaying graph

Asian stocks advanced alongside Treasury bonds as weaker-than-expected U.S. employment figures fuelled optimism that the Federal Reserve might soon lower interest rates. The MSCI Asia Pacific Index gained, with tech shares bouncing back from earlier dips. In Tokyo, the Topix index climbed 1%, hitting a new all-time high. This impressive performance came even as SoftBank Group experienced a sharp drop of up to 10%, bringing its monthly losses to around 25% after announcing the sale of its entire Nvidia stake on Tuesday. Despite this setback, SoftBank, Japan's leading tech investment giant, has seen its shares more than double in value this year. Meanwhile, Nasdaq 100 futures mirrored the rise after Advanced Micro Devices jumped 4.8% in after-hours trading, driven by upbeat sales growth forecasts. European stock futures also signalled a positive start to the trading session.

The US government is making progress toward ending the shutdown, with a proposed bill set to provide a vote on expiring Affordable Care Act subsidies next month. The bill also includes temporary funding for the government through at least the end of January, covering the holiday season, and extended funding for certain agencies, such as the FDA and military construction projects, until next September. While this progress is encouraging, the ongoing data vacuum persists. As a result, private reports have gained heightened attention, including ADP's new weekly private jobs report released on Tuesday. The 'NER pulse' indicated an average decline of -11.25k jobs over the four weeks ending October 25 (a preliminary estimate), continuing the downward trend observed since late September. However, the series has a limited historical record, making definitive conclusions challenging, despite its alignment with weakness highlighted in last week’s Challenger jobs report. Thin trading during the US Veterans Day holiday likely amplified its impact on the US dollar, pushing EUR/USD back to the 1.1600 level. This situation underscores investor concerns, particularly as market expectations for a December FOMC rate cut have scaled back (now at 70% probability from fully priced). If the shutdown resolution helps fill existing data gaps, a broader market repricing seems likely. Market participants are bracing for a flood of delayed data once government agencies resume their operations.

The unexpected rise in the UK unemployment rate to 5.0% yesterday sparked significant movement in the rates markets. By the end of the day, the market-implied probability of a December rate cut surged from approximately 70% to 85%, while gilt yields dropped by 6-8 basis points. Meanwhile, US Treasuries remained inactive due to Veterans’ Day. Despite lingering concerns about the reliability of the unemployment rate data, largely due to well-known sample size issues, the overall tone of the report was undeniably soft. One noteworthy detail was the decline in total hours worked during Q3, as highlighted in the labour market report. This development could have critical implications for the upcoming Q3 GDP figures. For output to grow, either the input levels must increase or there must be gains in productivity—an area where the UK has struggled in recent years. The drop in labour input raises concerns about downside risks to the consensus GDP growth forecast of 0.2% quarter-on-quarter. If labour contributions have decreased, it naturally limits the potential for output expansion. As the week progresses, this labour market data could significantly influence market expectations for the December MPC meeting. The UK macroeconomic news cycle is far from over, and investors are closely watching for further developments.