US jobs report takes center stage after Treasury yield surge | Morning Bid

Today, it's all riding on the US jobs report after bonds take a wild swing overnight. While Nike plans more job cuts as its turnaround stalls. And President Trump tells Europe to release its diesel stocks or face an export ban. This is Reuters Morning Bit, bringing you unfiltered market news and analysis straight from the Reuters newsroom. I'm Elena Kassas in London. And I'm Peter Devlin. It's Friday, October 2nd. So Peter, all focus has been on the bond market this week. US Treasuries did get a bit of relief overnight after hitting a 24-year high on Thursday. But now it all depends on the jobs report. The average forecast is for the US economy to have added about 90,000 jobs. But when Reuters polled economists, their estimates were all over the place. They went from 35,000 to 180,000. So what is the market expecting? Well, we've had such a mixed picture leading up to this report about where the sort of labour market is. I mean, look at the private payroll support, 90,000. That was the highest in three months. Well, as we look at the jobs report earlier in the week, it saw the lowest US jobs added since about five months. I mean, showed a bit of cautions from employers coming to the end of that summer season. So it shows this sort of where are we? We don't really know. And in terms of non-farm payrolls, it's swinging so widely, it's getting harder and harder to predict. Last month's number, August, came in at 162,000. Of course, that was a five-month high. And we are expecting that to be revised down later today. But it goes to show that even though these numbers show the US jobs market is relatively stable, still in a low, higher, low-fire environment, it is becoming more and more difficult to predict. And of course, this makes the equation more complicated for the Fed. Now, the odds of a rate hike coming up at the very next meeting in October have gone way down. The market now only sees about a 28% chance, whereas a week ago, they saw that as perhaps two thirds. That's because several Fed policymakers, including John Williams, have come out in the last day or so to say that they don't see a hike being urgent. But of course, a strong jobs report would really put pressure on them to move again, wouldn't it? Well, if we get a 90,000 reading, as we're expected, that puts it about an average of what we've seen for the entire year. So generally, that just means that the Fed has, as you said, the room to tighten further as it keeps its focus on inflation, which has been about target for five years now. But I mean, is it enough to really set a hike coming in October? Not really, if you think about it. I think that softer PCE this week has been the real factor here. I think December is where they're going to go next. I think the jobs number, as you say, would have to come in red hot in order for the odds on an October hike to increase again. But the market does still see 50 basis points of tightening in the cycle. And this is, of course, what's being reflected in the bond route that we've seen in recent days. So we could see pressure again on US Treasuries if that jobs number comes in particularly strong. Well, as you said, overnight, we saw a bit of relief in yields. And that really came from more focus turning to Europe and all their debt concerns. And we can do a lot more minutes on that. But let's keep with the US. Also, the focus now is maybe US Treasuries becoming a bit of haven. And that's also a lot of Fed comments themselves. We heard from Bowman and Jefferson saying there is time to wait to decide if they need more hikes. Even Lori Logan from the Fed saying that this rise in yields is maybe doing a bit of their jobs for them in terms of more hikes are needed. But I mean, all those concerns about US debt aren't going anywhere. And as you said, a lot more hikes are priced in for next year. And the concern, of course, is that the bond yield route isn't just tracking the oil price now, it isn't just tracking Fed expectations, but it's expressing a broader market concern about the size of US government debt, which isn't likely to go away anytime soon. And we can see now that the markets really have a lack of faith in the ability of the federal government to reduce that debt in any way. Well, another entity that's under pressure is Nike. Now, the new CEO there is supposed to be staging a turnaround, but it's not going very well, is it? Well, there's been a lot of bumps in the road for Nike leading up to those results. Not only the fact that it's not even in the S&P 100 anymore after two decades of being in there. And in these earnings, we saw more job cuts, another pledge to throw out the rule book and revitalise the company with new rules and ways to build up their deteriorating results. But I mean, it's just the whole Wall Street losing patience now with CEO Elliott Hill. He's been in the job two years and hasn't really brought in that turnaround. And we look at Nike shares, they're 40% this year on track for its fifth consecutive year in the red. A lot more is needed to really turn around Nike. I mean, these sales are really weak. We saw a 26% slump in China, which used to be a key market for Nike. They haven't yet said we should say how many jobs will go in this new cut. But it does really look as if the company needs an urgent change of plan, doesn't it? Well, let's look at China. It's the second largest market and it's just losing out to more nimble competition to the point now where Nike is pulling some promotions in that key market. They noted as well that that revenue in China is just going to keep decreasing for the next year. So they're going to need a lot more than just wheeling out the Kardashians in Shanghai, showing off their Nike skims to really take back that market. Well, and President Trump wants to see a lot more from Europe on diesel. Now, he's putting pressure on European countries to start releasing their diesel stocks. This has been going on for about a week or so. He's repeatedly threatened to block US diesel exports, which could be very serious for Europe, who are increasingly reliant on exports from the US after, of course, they sanctioned supply from Russia and supply coming from the Middle East has dried up. Now, France and Germany in particular are in the president's sights. They think, he thinks that they've not followed through on previous promises to release their diesel stocks. What could this mean for Europe? Well, I mean, you can see the dilemma in Europe. I mean, they have to keep prices low, but then also keep those reserves kept in case of emergency, say the wars in the Middle East and Ukraine continue to escalate. And I mean, we've heard previously from Germany and Spain saying that they don't think they need to release any more from the emergency stockpiles. But it's worth noting that France and Germany holds about a third of those entire stockpiles. So those are the names and opinions you need to really watch out for. President Trump wants France and Germany to release about 120 million barrels of diesel. Now, while their stockpiles, as you say, are relatively healthy, they have to price in that disruption coming from the Middle East could get worse. Now, the number of boats managing to successfully travel through the Strait of Hormuz has increased over the last week or so, although, of course, attacks continue. But countries have to bear in mind that this could get worse over the winter. And also that while many European countries do have their own refining capacity, this would almost certainly make prices go up at the pump if the US does ban exports of diesel. And some countries in particular will come under pressure, especially the UK, actually, where we do lack refining capacity and are forced to import diesel. Well, I'm just going to keep focused on the US here. And of course, there's a big issue for the midterms coming up. President Trump said he's losing a bit of his appetite for the diesel export ban, but it's still on the table. And that's probably coming from big warnings from big oil saying that maybe you'll see a slight reprieve in diesel prices at first, but a boomerang back in a few months later. So does maybe Trump have time enough to wait for that midterms and then deal with that afterwards? I mean, it's really a question of big oil versus big prices. And American voters are watching the price at the pump. For today's recommended read, check out Jamie McKeever's column on Unstoppable Wall Street. The link is in the show notes. And for more on any of today's stories, head to Reuters.com or the Reuters app. Follow us on your favorite podcast player. And if you're on a smart speaker, just ask for the latest market news from Reuters. We'll be back on Monday.