Markets Await Key US Payrolls Data as Euro Zone Inflation Accelerates

In Focus Today

• Euro area: The September flash HICP estimate is due. Headline inflation is projected to accelerate to 3.6% year-on-year from 3.2%, with the core rate edging up to 2.5% from 2.4%. Wednesday’s national prints from Germany, France, and Italy exceeded forecasts on the back of higher energy costs, though core spillovers remained contained; the aggregate release is expected to follow a similar pattern.
• United States: The September employment report takes center stage. Forecasts call for nonfarm payrolls growth of 100,000, the unemployment rate ticking down to 4.0% from 4.1%, and average hourly earnings rising 0.3% month-on-month. Despite a softer-than-anticipated JOLTS reading earlier this week, high-frequency indicators—including ADP’s weekly pulse and the PMI employment index—point to solid job creation. Initial jobless claims at 2023 lows, a depressed participation rate, and robust hiring momentum all argue for a further decline in the jobless rate.

Economic and Market News

Overnight Developments

Japan: Tokyo core CPI accelerated to 2.7% year-on-year in September (consensus: 2.4%), surpassing the Bank of Japan’s 2% target for the first time since January.

Commodities: Brent crude futures climbed above $102 per barrel after the Wall Street Journal reported the Pentagon is deploying a third aircraft carrier strike group and additional troops to the Middle East. The same report noted that President Trump has discussed potential strikes on Iran following the November midterms.

Yesterday’s Highlights

Geopolitics: According to Reuters, the Trump administration is pressing Germany and France to release emergency diesel reserves, threatening a U.S. diesel export ban if they refuse. The push aims to alleviate global fuel prices ahead of the midterm elections.

Euro area fiscal policy: France unveiled a 2027 budget targeting a deficit reduction to 5% of GDP. Markets greeted the plan with skepticism, driving the French 10-year yield briefly to 4.96% and widening the spread over German bunds to a post-euro-crisis high. Contagion hit rates markets: the 2-year EUR swap posted its largest drop since April as October ECB hike odds fell to 20%, while EUR/USD slipped below 1.13.

Euro area labor market: The August unemployment rate held at 6.4% for a seventh consecutive month, signaling stability at the aggregate level. Under the surface, German unemployment continues a marginal uptrend, whereas French joblessness has begun to decline after rising through much of last year.

United States labor market: Continuing claims dropped to 1.701 million (consensus: 1.725 million) and initial claims came in at 197,000 (consensus: 200,000). Continuing claims are at their lowest since early 2023, underscoring a tight labor market. The September ISM manufacturing index dipped to 54.5 (consensus: 55.0) but remains firmly expansionary; notably, the prices paid index surged to 77.9 (consensus: 72.3).

Federal Reserve: Governor Jefferson (a permanent voter) echoed Governor Williams’ Tuesday remarks that the Fed can afford patience before its next rate move. Traders pared the probability of an October hike to below 30% from roughly 35% prior to the comments.

Equities: Global stocks ended mixed. The S&P 500 gained 0.2%, the Nasdaq edged higher, and the Russell 2000 rose 0.4% on a late-session rally triggered by balanced-to-dovish Fed commentary. European benchmarks missed the bounce, closing 1.3% lower. Reports that Anthropic may go public in mid-November circulated. Overnight, Asian markets were mixed ahead of the U.S. jobs data, with U.S. futures up 0.3% and European futures flat.

Fixed Income and FX: A pronounced risk-off shift drove U.S. Treasury and German bund yields sharply lower, while French, Italian, and Greek sovereign yields jumped. USD and EUR swap curves flattened, falling 9–12 basis points in the front end and 5–6 basis points further out. The French sovereign auction attracted decent demand, but the budget presentation failed to soothe nerves. The euro sold off broadly across G10, touching 1.1220 versus the dollar before a modest recovery. The 1.12 level on EUR/USD should not be viewed as a floor if fiscal concerns deepen. Meanwhile, reports of potential U.S. military escalation against Iran lifted oil prices, supporting the Canadian dollar and Norwegian krone despite the sour risk backdrop.

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