US manufacturing ISM declined to 50.2

Market Movers

• Today’s key event is the US non-farm payroll report. Over the past three months, the US economy has added, on average, 221,000 jobs per month - a pace that cannot be sustained in an economy where potential labour force growth is only around 150,000 per month and even lower if we do not see an increase in the labour participation rate. Our models suggest a slowdown in job growth in September to 180,000 and even though this is slower than the recent trend, it is still enough, if sustained, to put additional downward pressure on the unemployment rate. In our view, job growth will need to drop below the 160,000 mark before the Fed will see it as an obstacle to starting the tightening cycle later this year. In terms of the unemployment rate, we expect the rate to stay unchanged at 5.1% in September but to head below 5% by year-end.

• The Boston Fed’s conference on Macroprudential Monetary Policy is kicked off today and will run through Saturday. Fed members Eric Rosengren, William Dudley, Loretta Mester and Narayana Kocherlakota are among other scheduled speakers.

• In Scandi markets focus will be on Norwegian unemployment and Danish FX reserve figures due for release today, see Scandi Markets.

Selected Market News

US manufacturing ISM declined to 50.2 in September from 51.1 and below our own and the consensus expectation of a decline to 50.6. A further deterioration in the new order/customer inventory rate suggests more downside to ISM in the coming months. Hence, overall a weak reading that raises the risk that the Fed will once again postpone hiking its key policy rate, which we expect to be increased at December’s FOMC meeting.

The oil price declined on rising concerns of slower US economic growth on a day where the geopolitical risk to global oil supply gained attention in the oil market and added support to the oil price. We highlight the upside risk to the oil price from the fragile geopolitical situation in the Middle East and following Russia’s military intervention in Syria. This could move to the top of the agenda in the oil market in the coming days and weeks.

The People’s Bank of China has reduced the minimum home down-payment for first-time buyers in an attempt to stimulate Chinese economic growth, albeit targeting a more specific area of the economy.

In a speech at the Association of Danish Mortgage Banks’ Annual General Meeting yesterday, Danish central bank governor Lars Rohde reiterated that the DKK market has gradually normalised and noted that with Denmark as a creditor nation pressure on the DKK is more often on the upside.

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