Risk-off puts all eyes on US jobs report

In focus today

• Today's focus will be on volatile markets following yesterday's pronounced risk-off move, as concerns over the sustainability of the AI boom continue to weigh on investor confidence. Further details in the equities section below.
• From the US, the main event today will be the October jobs report. We expect employment growth of +70k (cons.: +65k, prior: +29k), the unemployment rate at 4.1% (cons.: 4.2%, prior: 4.2%) and average hourly earnings at 0.3% m/m SA (cons.: 0.3%, prior: 0.1%). Also from the US, we get the University of Michigan consumer confidence survey.
• In the euro area, September retail sales are released. Consensus expects a decline of 0.2% m/m, suggesting the positive growth recorded in September PMIs was not driven by private consumption.
• On the wires, the Fed's Williams will speak at 10:30 CET.

Economic and market news

What happened overnight

In commodities, Brent crude moved above USD 100/bbl. overnight, reversing part of Wednesday's decline, amid broad risk-off sentiment across markets. On the supply side, Iran's Revolutionary Guard reported that two oil tankers and a tugboat caught fire after allegedly attempting unauthorised routes through the Strait of Hormuz. In gas, a "dunkelflaute" this week has put pressure on the power market, spilling over to gas prices. Europe has started drawing on stocks from historically low levels with storage 74% full, below the previous low of 77% at this time of year in 2021 and well under last year's 82%.

In the Russia-Ukraine war, President Trump confirmed he met privately with Putin's envoy Dmitriev at the White House, stating the war was "very close" to being settled. Meanwhile, US envoy Kushner announced the first trilateral peace discussion between the US, Ukraine, and Russia since February, set to take place in Abu Dhabi on November 10-11.

What happened yesterday

In England, the Bank of England (BoE) raised the Bank Rate by 25bp to 4.00%, with an 8-1 vote split where the dissenter, Mann, preferred a 50bp hike, meaning that all members supported tightening. The BoE expects inflation to reach around 5% by mid-2027 and, despite limited evidence of second-round effects, sees enough price pressure to act. We change our call and add two further 25bp hikes in February and April, taking the Bank Rate to 4.50%. Read more in: Bank of England - Review Hawkish surprise: 8-1 vote, Mann backed 50bp to 4.25%, 5 November.

In Norway, Norge's Bank kept the policy rate unchanged at 4.50%, as expected, repeating its September guidance that "it will likely be necessary to keep the policy rate elevated for a time" and that it is prepared to raise rates if needed. Given that Norge's Bank in September signalled less than 50% probability of a December hike, we expect rates to remain unchanged unless October and November inflation figures surprise significantly to the upside.

In Sweden, October inflation came in lower than expected, with core inflation at -0.2% m/m, 0.1% y/y (Danske & cons.: 0.2%/0.5%). The low print appears to be driven by recreation, which includes volatile package holidays, with goods prices also on the low side. As expected, the expiry of the first temporary fuel tax cut on 1 October reduced the tax-related drag on CPIF, while energy prices were broadly in line with expectations.

In the US, Fed's Hammack (2026 voter) said a gradual rate-hike path is the best way forward and that policy needs to move to a restrictive stance. Hammack voted for a hike in October, and while today's tone was somewhat less hawkish, we still expect her to vote for a hike in December. Separately, Barkin (2027 voter) echoed a similar tone, calling the policy path "straightforward" and saying a gradual approach "makes sense", adding that he does not see inflation falling. Both comments suggest growing support within the Fed for hikes ahead, though at a measured pace.

Equities: The AI unwind escalated into an outright rout yesterday and took the whole US market with it. The S&P 500 fell 4.4%, with every sector lower and IT leading the declines, while the Nasdaq Composite lost 5.5% and the Nasdaq 100 6.4%, its worst session since March 2020. The Philadelphia Semiconductor Index collapsed 12.3%. Defensives held up far better, so this was rotation within equities as much as money leaving them. The Stoxx 600 fell only 0.4%, but futures point to a 0.8% lower open in Europe after tech heavy Taiwan is dropping 4.6% and the Kospi 5.4% overnight. US futures are tentatively steadier, with Nasdaq 100 up 0.8% and the S&P 500 marginally higher.

FI and FX: The US Treasury yield curve bull-steepened yesterday, as a rotation out of US chipmakers escalated and dragged the S&P 500 down by roughly 4%. This prompted safe haven flows into Treasuries and particularly at the front end, with 2Y yields declining by around 10bp. The deterioration of risk sentiment and growth concerns similarly set the tone for the FX market. JPY and CHF were top performers, and the USD regained some ground as well. EUR/USD retraced a bit of the initial post-midterm rise and traded closer to the 1.12 level. NOK strengthened and SEK weakened.