Cooling US labour market sees October job cuts reach 20-year high

In focus today

From the US, University of Michigan's November flash consumer sentiment survey is due for release. We will keep a close eye on the inflation expectations, which have remained clearly elevated this year. Note that the US October Jobs Report, which would normally be due for release today, is delayed by the ongoing government shutdown.

In Norway, today brings the wage figures for Q3, which will be interesting after they surprised on the upside in Q2 with an increase in annual growth to 5.3% and a full 6.3% including variable payments. The wage figures released so far in Q3 indicate that wage growth slowed to around 4.8% in Q3, which would mean that the risk of sustained high wage growth becomes a little less acute.

Have a great weekend!

Economic and market news

What happened overnight

In the US, President Trump met leaders from Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan to strengthen ties on critical minerals, energy, and trade. Agreements included mineral cooperation, Boeing sales, and Uzbekistan's USD 100bn US investment pledge, aiming to reduce reliance on Russia and China while boosting US influence in the region.

In Sweden, this morning, we already received figures from Svensk Mäklarstatistik that showed an unchanged number of transactions in October (seasonally adjusted). However, house prices rose for both villas and condominiums, well in line with expectations.

In China, exports surprised to the downside in October as it dropped into negative growth of -1.1% y/y (consensus 2.9% y/y) from 8.3% y/y in September. However, the decline may be due to the uncertainty around Trump's 100% tariff threat and extra holiday in October compared to last year. We expect exports to rebound in November as the US-China trade deal in late October led to a tariff decline of 10% to the US rather than the increase of 100%. It is also important for China, though, that the export engine keeps running as domestic demand is still struggling. So, it will be important to monitor.

What happened yesterday

In the US, the Challenger report showed further signs of a cooling labour market, with 153,074 job cuts in October - the highest for the month in over 20 years. Layoffs were largely driven by cost-cutting, AI restructuring, and overcapacity, particularly in the tech and warehousing sectors. Year-to-date hiring plans are also at their lowest since 2011. This contrasts with the stronger-than-expected ADP report earlier this week and, all else equal, supports a dovish stance for the Fed.

Also in the US, the White House announced a deal with Novo Nordisk and Eli Lilly to lower the prices of weight-loss drugs like Ozempic, Wegovy, and Zepbound. Prices will drop to USD 149-350 per month through the upcoming TrumpRx site, with Medicare co-pays capped at USD 50 starting mid-2026. In exchange, the companies gained tariff exemptions and accelerated FDA reviews for upcoming oral weight-loss pills.

In Sweden, October flash inflation figures surprised to the upside. Core inflation came in at 2.8% y/y (Danske: 2.65%, Cons.: 2.6%, RB: 2.56%) and CPIF at 3.1% (Danske: 2.95%, Cons.: 2.9%, RB: 2.66%), both exceeding the Riksbank's forecasts. Inflation details will be released on 13 November.

In Norway, Norges Bank held rates unchanged at yesterday's interim meeting, with no new policy signals and repeating the September monetary policy guidance. Markets interpreted the communication as slightly hawkish; however, we think history has shown that Norges Bank just wants to refrain from giving any news to markets at the interim meetings unless the pricing for the subsequent big meeting is off. We still expect the third 25bp cut in March 2026, followed by quarterly cuts through 2026 (June, September, December), bringing the key policy rate to 3.00% by end-26.

In the UK, the Bank of England kept the Bank Rate at 4.00% with a 5-4 vote split, showing a more dovish stance than expected. Further easing hinges on the continuance of the recent promising disinflation. We now forecast Bank rate cuts in December and April, ending the cycle at 3.50%. Read more in Bank of England Review - Dovish hold, 6 November.

In the euro area, retail sales declined 0.1% m/m in September, falling short of an expected rise of 0.2% m/m. Retail sales have thus declined in two consecutive months after a rise in the first half of the year, leaving it up 1.0% y/y. Continued low consumer confidence likely explains the weakness in spending despite solid household financials and rising real incomes. We expect consumption to gradually rise next year due to a strong labour market and real income gains, but low confidence should keep consumers quite cautious.

In Germany, industrial production rose 1.3% m/m in September (cons: 3.0%), with gains in automotive and electronics offset by weakness in mechanical engineering. This marks a rebound from August's sharp -4.3% decline led by the automotive sector, but production remains one percent lower than September last year.

Equities: US equities were sharply lower again, with S&P 500 selling off -1.1% and Nasdaq -1.9%, not far off intraday lows. Once again, this was a sell-off related to AI scepticism and not by pure macro worries - despite a surprising amount of layoff taking investors by surprise. However, looking at the sector composition, we can pinpoint weakness to AI, as AI heavy sectors like tech, consumer discretionary and communication were down 2-3%. Pure cyclicals like banks and industrials were down only -0.4% which would not have been the case if labour market fears triggered the selloff. US futures are little changed this morning.

Like earlier this week, the sell-off is spreading to the tech-heavy Asian markets, with Kospi and Nikkei down 2-3% and on track for a 5% correction so far this week. This setback is of course a challenge to our Asia overweight call (well, after months of tremendous outperformance). Our thesis was that Asian tech are the indirect winners on AI capex - so far so good - but to a much lower multiple and hence lower downside risk if and when the tide is turning. Yet so far, the Asian selloff has been more pronounced than we had expected. While Kospi is down 6% the last five trading days, S&P 500 is only down by half.

FI and FX: GBP rose vis-à-vis rest of G10, but less so vis-à-vis EUR after BoE kept rates unchanged yesterday after some speculation it would cut rates. Norges Bank also kept rates unchanged, which was widely expected. EUR/NOK rose, but that was likely on the back of the sour risk sentiment. EUR/USD also rose yesterday. A rebound seemed on the cards following the recent sell-off as the US government shutdown drags on. Bond yields dropped - most in the US - as equities fell.