Weekly fixed income review

Market review: week to 4 October 2019

  • US data disappointed markets. The US ISM non-manufacturing print was much weaker than expected at 52.6 (55.0 expected), the lowest level since August 2016. Meanwhile, the manufacturing print fell to 47.8, the lowest in a decade and well below the expected 50.0 reading. US non-farm payrolls came in at 136,000 (versus 145,000 expected). Over the week, the 10-year Treasury yield fell as markets grew increasingly jittery over the economic outlook.
  • European economic activity continued to contract. The eurozone reading was confirmed at 45.7, with France at 50.1 and Germany at 41.7. French 10-year spreads were largely unchanged, while the 10-year bund yield fell slightly. Meanwhile, PMI data consolidated in emerging markets. 
  • Factors helping sentiment included positive trade rhetoric and dovish Federal Reserve (Fed) expectations. US President Donald Trump said a delegation from China will visit the US next week to continue trade talks. Meanwhile, there are dovish expectations for the upcoming Fed meeting: the market is pricing in a 90% possibility of a rate cut.
  • Italy released its new budget outlook document that sets a target for a 2020 deficit at 2.2% of GDP and aims to boost growth to 0.6%. Italian 10-year spreads tightened marginally.
  • The UK government published its proposals for a revised Withdrawal Agreement, including a replacement of the Irish backstop with a single regulatory zone covering Northern Ireland and the Republic of Ireland, with no customs checks near the border. In response, Irish Prime Minister Leo Varadkar said the proposals “do not fully meet the agreed objective of the backstop.” Over the week, 10-year gilt yields fell slightly.
  • In US credit, there was limited issuance due to upcoming earnings, with a real estate investment trust (REIT) and an aircraft leasing company coming to market.

Chart of the Week: US non-manufacturing ISM surprises markets as it dips to lowest level since August 2016

Chart of the Week- US non-manufacturing ISM surprises markets as it dips to lowest level since August 2016

Source: Bloomberg. Data as at 4 October 2019


Source: Bloomberg, 4 October 2019

Economic calendar

7 October: Germany August factory orders
8 October: US September PPI; UK Q2 unit labour costs; Germany August industrial production; France August trade balance; China September Caixin services and composite PMIs
10 October: US September CPI; Japan September PPI and core machine orders; Germany August trade balance; France August industrial and manufacturing production; UK August monthly GDP, industrial and manufacturing production
11 October: Germany September CPI

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