French connection

Reuters Morning Bid

The episode examines how a significantly softer-than-expected September US payrolls report has effectively removed an October Federal Reserve rate hike from consideration, cooling Treasury market volatility.

Key takeaways

• September US payrolls came in at just 29,000 jobs against a 90,000 estimate, taking an October Fed rate hike off the table while leaving broader economic indicators like construction and manufacturing relatively strong.
• France's sovereign risk premium spread over German bunds hit its highest level since 2011, driven by political gridlock that could push next year's deficit to 6.5%.

Main topics

• US labor market data and Federal Reserve rate policy
• French sovereign debt crisis and eurozone cohesion

Notable quotes

"Only 29,000 jobs created in September, well below the estimates of 90,000."

Conclusion

Listeners gain a clear understanding of how divergent political and economic pressures are testing European

Transcript preview

Speaker 1 (0:00) you Speaker 1 (0:01) Today, a soft US payrolls report takes another Fed rate hike in October off the table. Speaker 2 (0:06) Plus, the French sovereign risk premium blows out to 15-year highs and raises ghosts of the Eurodebt crisis. Speaker 1 (0:12) And energy prices dial back as G7 countries agree to release 100 million barrels of diesel and crude. This is Reuters Morning Bid, bringing you unfiltered market news and analysis straight from the Reuters newsroom. I'm Anna Szymanski in London. And Speaker 2 (0:27) I'm Mike Dolan. It's Monday, October 5th. Speaker 1 (0:32) Well, Mike, Wall Street got a bit of a boost on Friday after payrolls came in significantly weaker than anticipated. Only 29,000 jobs created in September, well below the estimates of 90,000. You also saw the previous month's jobs numbers get dialed back and unemployment ticked a little bit up. So now this certainly takes an October rate cut off the table. But do you think this really changes the trajectory of the Fed moving forward? Speaker 2 (0:56) Well, October is below 20 % now, so you're right, it's more than likely off the table. And of course, it's not just because of the payrolls. We've seen many Fed speakers even before then thinking it was a little bit early to go again. December is still likely, though, for another hike. So does it change the whole trajectory? Absolutely not. And one of the reasons is the overall report, while all the headlines seem to be weaker than had been bargained for, it wasn't a... particularly weak report. If you look at things like construction and manufacturing, where we've seen much of the heat in the economy because of the big data centre build-out and other aspects of what's going on. then that was reasonably strong. And also, when you saw that tick up in the unemployment rate, that was mostly down to more people looking for work. So the participation rate, if you like, goes up, which is usually a sign of economic strength. So it wasn't, you know, it wasn't, you know, across the board, a weak report, even though enough to keep everyone watching data for a bit longer. I think that's the takeaway. It has taken the heat out of the Treasury market a little bit this morning. So certainly a lid has been put on those extreme moves in the long end of the bond market. slip back in the oil price after the G7 move on Friday has also helped that. Speaker 1 (2:23) Yeah, so we'll get back to the G7 move in a moment, but staying maybe on bond markets, obviously where we're still seeing heat is in Europe, particularly in France. Speaker 2 (2:32) Yeah, this is going to be the big story in debt markets, certainly over the coming months, certainly over the next