Fixed income markets gained respite on Friday

Market movers today

• With few important data releases today, focus will be on the US decision on Syria, as Congress is likely to vote this week on whether to carry out a strike. So far, Obama has support from the Senate but, in our view, it will be harder to get the House of Representatives on board.

• Fed’s Williams (non-voter, dove) is due to speak this afternoon and this could give more insight into the Fed’s view on tapering after Friday’s job report. With the weak job growth, we put a 75% probability on a September start to tapering and 25% on October.

• Italian politics may also again attract attention as the senate committee starts expulsion proceedings against former PM Berlusconi. The issue risks splitting the Italian coalition government in two.

• The Norwegian election is likely to see the centre-right opposition rise to power, though the exit of incumbent PM Stoltenberg’s centre-left coalition will not have much of a market impact, in our view. In Denmark, current account data is due. For more on Scandi markets see page 2.

Selected market news

The outlook for Fed tapering has become more cloudy after Friday’s US employment report showed job growth of just 169,000 in August, potentially opening the door for the Fed to postpone scaling back QE until the October meeting. Nonetheless, other recent data have all pointed to further improvement on the labour market, thus suggesting that a September start to tapering is still the most likely outcome. The desire to avoid excessive market volatility is a further argument. According to a survey on Bloomberg conducted after the employment report, the consensus expectation is for the Fed to scale back its monthly purchases by USD10bn to USD75bn at the September meeting. Furthermore, new efforts to strengthen forward guidance in an attempt to ease concerns over labour market conditions are also possible.

Chinese foreign trade data released over the weekend provided further signs of a revival in growth on the country’s export markets, though weaker-than-expected import growth pointed to a slow domestic recovery. Exports rose 7.2% y/y in August (survey: 5.5%, prior: 5.1%), while imports were up 7.0% y/y (survey: 11.3%, prior: 10.9%). Overnight, data also showed Japanese Q2 GDP revised higher to 3.8% (ann.) from 2.6%, boosting the chance that the government will proceed with a hike in the sales tax.

Fixed income markets gained respite on Friday, following the disappointing US employment report. Safe-haven flows were also supported by a report that Russian President Putin would assist Syria if it were attacked. US equity markets traded flat as concerns over Fed tapering eased somewhat. This morning, Asian shares are trading higher on economic data and after Tokyo won its bid to host the 2020 Summer Olympics.