Weak US private payrolls amid Friday's NFP release uncertainty

In focus today

• In the euro area we receive the unemployment rate for August, which is expected to have remained at 6.2%. The labour market remains strong, but it has moderated somewhat with employment increases almost stalling, which does give some upward risks to the unemployment rate in the coming months as the labour force expands.
• From the US, the Challenger report for layoff announcements is due for release for September. While this is not usually a tier-1 data release for markets, we will keep an eye out for potential upticks in layoffs considering the Fed's increased focus on labour markets.

Economic and market news

What happened yesterday

In the euro area, inflation rose to 2.2% y/y in September from 2.0% y/y, as expected, driven by base effects on energy prices. Importantly, looking at monthly momentum in core inflation it increased by 0.2% m/m SA, maintaining the pace of recent months, with services and core goods showing similar trends. The September inflation report offered no surprises and likely reaffirmed the ECB's outlook, supporting expectations for the deposit rate to remain at 2.0% through 2025 and 2026.

Meanwhile, final manufacturing PMI for September was revised slightly higher to 49.8 from 49.5, mainly due to Germany. However, the data confirms a loss of momentum in manufacturing, with the index falling below 50 after a strong rebound earlier this year. As front-loading effects continue to fade, we anticipate further weakness towards year-end and project modest GDP growth of 0.1% q/q in both Q3 and Q4.

In the US, the Supreme Court has temporarily blocked Trump's attempt to remove Federal Reserve Governor Lisa Cook, deferring the case until January 2026. This marks a significant victory for both Governor Cook and the independence of the Federal Reserve.

Also in the US, private payrolls fell by 32,000 in September, far below the expected +50,000, according to the ADP report. Annual benchmark revisions subtracted 43,000 jobs from the September figure, as past data are not revised retroactively. While this softens the headline weakness, the result remains significantly below expectations. If the government shutdown delays the release of the official Jobs Report, this ADP figure might be the Fed's only employment data for some time. Following the release, UST yields fell, and EUR/USD moved higher. Meanwhile, the ISM manufacturing index rose slightly to 49.1 in September from 48.7 in August, just above the forecast of 49.0. Gains in production and employment were offset by declines in new orders and export orders. The prices index fell to but remains at a historically high level. The mixed data prompted a muted market response.

In Sweden, the September manufacturing PMI rose slightly to 55.6 from 55.3 in August, supported by gains in employment and new orders. Over the past year, new orders have remained consistently strong, except for a sharp drop in June, which has since fully recovered. So far, tariffs have had no noticeable impact on production plans or supply chains, as delivery time remains stable. The PMI also indicates subdued price pressure, driven by a stronger currency and stable commodity prices.

In Norway, manufacturing PMI edged up to 49.9 in September from 49.6, indicating a continued moderate slowdown in the sector. The details were mixed, with new orders declining while production and employment improved. As we have highlighted previously, the PMI has consistently been weaker than hard data, so we currently place less weight on these figures.

Equities: Equities rose sharply yesterday, led by Europe. Investors showed little concern over the US government situation, consistent with historical market behaviour during shutdowns. The Stoxx 600 climbed 1.2%, while the US lagged behind. S&P 500 still managed a 0.3% gain - enough to reach a fresh all-time high.

The session was marked by tariff relief, particularly benefiting pharma and biotech stocks after Pfizer struck a deal with the US government, fuelling expectations of similar agreements with other companies. European steelmakers also rallied (SSAB +9%) on a new turn in the trade war: EU vs China. Reports suggest the European Commission may cut steel import quotas by nearly half and impose tariffs of up to 50% on imports above those limits, basically mirroring US tariff levels. Futures are higher this morning.

FI and FX: The combination of a broad-based rally in risky assets, lower USD yields and an outperformance in Europe vis-à-vis US made for a very strong cocktail for most European FX yesterday including NOK, SEK and GBP. US yields declined across the board in yesterday's session, led by the front end, which fell 8bp following a very soft ADP employment report showing private sector payrolls contracted by 32k in September. The weak labour market data led markets to fully price in a 25bp Fed cut later this month. EUR/DKK rose above 7.4660 yesterday and thus towards the top end of the trading range. The move comes before a tidal wave of liquidity hits the market today, when the government's purchase of new Ørsted shares and Copenhagen Airport are set to settle.