Take your pick whether Savage Garden’s 1999 hit references the ignominious performance on Friday by the British Pound or that of Donald Trump as revealed in 2005 tape recordings and which might just have sounded the death knell for his 8 November presidential election chances.

Friday night’s US payrolls report underwhelmed for the second month running, showing a 151k employment gain, small net negative revision for the prior two months and the unemployment ticking up to 5.0% from 4.9% thanks to a 0.1% rise in the labour participation rate. Average hourly earnings were up only 0.2% against 0.3% expected, though the year-on-year rate did tick up to 2.6%, albeit still beneath the cycle high of 2.7% recorded in July.

The data was deemed strong enough to keep December Fed tightening expectations fairly firmly intact. Swaps market pricing saw implied odds for the December meeting slip to 76.4% from 78.0%. The bigger move was in pricing for the November Fed meeting date, down to 26.4% from 33.2%. Fed vice chair Stanley Fischer and noted FOMC hawk Esther George both paid compliments to the data, though Fischer laments the continued poor GDP growth performance. Fischer said” Since monetary policy is only modestly accommodative, there appears little risk of falling behind the curve in the near future, and gradual increases in the federal funds rate will likely be sufficient to get monetary policy to a neutral stance over the next few years”.

US stocks jumped at the open but soon gave ground in a choppy session to end lower, as did bond yields and the dollar. Focus quickly shifted to Sunday night’s second Trump-Clinton TV debate. The S&P500 ended 0.33% at 2153.74. Materials and industrials lead the losses – in contrast healthcare and financials ended with small gains.

In US rates we saw a fairly uniform shift down in the curve, 2s -2.0bps to 0.832% (still +6.8bps on the week) and 10s -1.9bps to 1.719% (+12.4bps on the week). 10yr Bunds added +3.8bps to close the week in positive terrain (0.02%) and gilts +9.8bps to 0.969, clearly not impressed by the whiff of a Sterling crisis in the GBP shenanigans earlier in the day.

Over the weekend ECB President Mario Draghi speaking in Washington where the IMF meetings are taking place, suggested inflation is about to rise and that growth has stabilised, while Governing Council member Nowotny says that the market needs a signal on the ECB’s intent re its QE programme and should have it before the end of the year.

In FX, the US dollar finished slightly lower in index terms, DXY -0.14% at 96.63 (but still 1.2% up on the week) and the broader BBDXY -0.15% or a 1% gain on the week. USD/JPY was the biggest causality of the weaker than expected headline NFP prints, -0.93% to Y102.98. GBP/USD ended NY at 1.2434 after the earlier APAC session flash crash, a fall of 1.82 cents or 1.44% on the day. CAD underperformed AUD, NZD and NOK despite a blockbuster Canadian September employment gain (+67.2k). AUD/USD ended fairly flat on the day, -0.04% to 0.7582 having made a pre-payrolls high of 0.7624. EUR/USD +0.45% to 1.1201 ahead of Draghi’s weekend speech. AUD has started the week a touch firmer.

In commodities, oil slipped a little, WTI and Brent both down 60 cents to $49.81 and $51.93 respectively but still up $1.57 and $2.87 on the week. Gold lost 90 cents to $1248.9. The LMEX index gained 0.17% while the China import iron ore market was closed for the Chinese holiday.

Coming Up

The second Trump/Clinton debate takes place from 11:00 AEDT this morning and the polling impact of both that and Trump’s latest misogynistic audio revelations provide the early week focus. Watch the Mexican peso for snap market judgement – both before and after the debate. The peso rallied quite hard out for the first debate, since when respected political forecaster Nate Silver’s www.fivethirtyeight.com had as of Saturday pushed the probability of Clinton winning up to 81.3% against 18.7% for Trump. If there’s no reversal of Hillary’s lead – or indeed an extension of it after Monday, then by the end of the week it’s reasonable to think that a Clinton victory will be fairly fully priced into markets. In the first instance, this will merely underpin confidence in a December Fed tightening.

US politics aside, we get the FOMC minutes on Wednesday and a speech from Fed chair Yellen in Boston on Friday along with retail sales – the key US release of the week. There’s plenty of other Fed (and ECB) speak due during the week. China’s trade figures on Thursday will rate a mention.

US corporate earnings season starts this week, with Alcoa tomorrow and the JP Morgan, Citigroup and Wells Fargo all on Friday. Locally, NAB’s latest business survey is tomorrow.

Overnight

On global stock markets, the S&P 500 was -0.33%. Bond markets saw US 10-years -1.91bp to 1.72%. In commodities, Brent crude oil +0.13% to $51.93, gold-1.3% to $1,249, iron ore $55.86 (China closed Friday). AUD is at 0.7598 and the range since Friday 5pm Sydney time has been 0.7554 to 0.7624.

For full analysis, download report:

•  Markets Today: 10 Octber 2016 (PDF, 109KB)

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