Must read: bonds, PMIs, oil, bitcoin, UK jobs, Hermes

GLOBAL MARKETS

European markets are trading around the flatline, but banks are trading in the red. Barclays (LSE:BARC) is leading the losses after the British bank reported a drop in profits in the third quarter and increased its provisions for bad loans. After closing at a near seven-week low on Monday, the FTSE 100 has opened lower again with Barclays trading at the bottom of the basket.

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Top investors Bill Ackman and Bill Gross have got rid of their bond shorts in a sign that the sell-off in bonds could be coming to an end. Ackman said he has unwound his bets against US government bonds, while Gross says he is buying short-dated interest rate futures ahead of a possible recession by the end of the year.

• Barclays: bank narrowly beats Q3 profit forecasts
• Benstead on Bonds: the bond crash has broken records – is it finally time to buy?

PMI readings are trickling out of Europe this morning with France’s flash manufacturing print for October hitting 40.7, down from 44.2 in the previous month and missing estimates. However its services reading picked up from a near three-month low in September of 44.4 to 46.1 this month. In Germany, the manufacturing PMI hit a five-month high of 40.7 but is still stuck sharply below the 50 boom-bust divide, while its services sector reading dipped below 50 to 48 in October.

Oil prices are trading higher with Brent crude back above $90 a barrel reversing some of yesterday’s declines driven by concerns about the Hamas war affecting oil supplies in the Middle East. Price action in the oil market has seen wild swings lately between gains and losses as investors try to assess the risk of escalating tensions versus diplomatic improvements after Hamas released two more hostages.

Bitcoin has surged above $33,700, up around 17.5% in the past five days and is up nearly 30% over the past month. The highly volatile asset surpassed $34k to touch the highest level since May 2022 earlier, driven by expectations that a Bitcoin ETF could achieve regulatory approval in the US and ahead of its halving next year.

Focus turns to US tech earnings later today with results from Alphabet Inc Class A (NASDAQ:GOOGL), Microsoft Corp (NASDAQ:MSFT), and Snap Inc Class A (NYSE:SNAP).

UK UNEMPLOYMENT RATE

Experimental estimates from the ONS showed that the UK unemployment rate hit 4.2% between June and August up 0.2 percentage points versus the previous quarter (March to May). The quarterly employment rate hit 75.7% down 0.3 percentage points versus the prior three months.

The ONS decided to publish an alternative series of estimates of labour market statistics because of the uncertainty around the Labour Force Survey (LFS) due to challenges in maintaining response rates.

There are signs of slack emerging in the labour market with the unemployment rate increasing and the number of people in employment decreasing. This echoes other labour market statistics published last Tuesday, which saw job vacancies decline and pay growth drop for the first time since January, highlighting the fragility of the economy as elevated inflation and the Bank of England’s stream of rate hikes take their toll on the jobs market. Businesses are clearly becoming more cautious about their hiring plans, while finding jobs is becoming more challenging for workers. At the same time, wage growth remains strong by historic standards, something the central bank will be paying close attention to in terms of its battle against inflation and its monetary policy outlook.

HERMES

Hermes International SA (EURONEXT:RMS) reported third-quarter sales of 3.37 billion euros, up 15.6% at constant exchange rates, surpassing analysts’ expectations. Sales in the Americas outperformed, soaring by around 20%. There were also strong sales in Europe as well as in China, too, thanks to its post-Covid economic rebound.

A recent disappointing performance at LVMH Moet Hennessy Louis Vuitton SE (EURONEXT:MC) sparked concerns that the recent luxury boom is fading. Yet Hermes is managing to defy the economic headwinds thanks to price hikes which don’t appear to be weighing on customer demand. Unlike most goods where demand softens as prices rise, the luxurious allure of a Hermes bag, with some costing over $10,000, only seems to improve as prices increase. Some ultra-wealthy individuals have also been turning to the luxury goods market as a source of alternative investments where prices seem to go up and up.

Shares in Hermes are trading higher this morning, lifting other luxury goods companies such as LVMH and Compagnie Financiere Richemont SA Class A (SIX:CFR) with it. However, Hermes has been under pressure since the May highs reflecting the macroeconomic headwinds and potential slowdown in luxury demand.