The sustainable investor for a changing world

Front of mind | Article - 3 Min

Weekly Market Update – Too strong US data drives rates higher

Ten-year US Treasury bond yields are approaching 5%, surpassing the level reached earlier in October before the outbreak of conflict in the Middle East. Over the last two weeks, yields did fall back as geopolitical worries led investors to take risk off the table, but recent better-than-expected US economic data has driven yields back up.  

The increase in nominal bond yields has been driven not only by rising real (inflation-adjusted) yields – as has been the case since July – but also by rising inflation expectations (see Exhibit 1). This may reflect market concerns that, should Iran become involved in the Israel-Hamas conflict, it could mean higher oil prices.

US economic data, however, has not necessarily been as strong as the market appears to believe. The apparent ‘surge’ in US private non-farm payrolls data from two weeks ago is worth a closer look.

The seasonally adjusted headline figure of 336 000 jobs created (compared to the expected 170 000) included a significant amount of government hiring. The non-seasonally adjusted (i.e., actual) figure for private payrolls fell by 399 000. So private-sector employment actually declined in September, but it almost always does as summer hiring is unwound.

The decline was less than average – hence the above-average seasonally adjusted figure – but the true, non-seasonally adjusted data paints a different picture of how the labour market is doing compared to the media reports. It also makes it easier to understand why average hourly earnings growth declined from 4.3% year-on-year to 4.2% from the previous month.

The latest US inflation data was similarly presented as stronger than expected. The year-on-year change in the consumer price index (CPI) was 3.7% versus the forecast 3.6% increase. But again, the detail reveals a different picture.

For the US Federal Reserve, core inflation matters more. It rose by 0.3% on the month (as expected), but the increase was almost entirely driven by still-high shelter costs. While higher housing prices spell inflation, it is less of a concern for the Fed insofar as high mortgage rates will likely lower housing costs eventually. The latest housing starts data, for example, came in below consensus expectations. Exclude shelter from the inflation calculation and ‘core core’ inflation rose at just 0.07% on the month (1.9% year-on-year).

Aside from technical factors such as investor positioning and selling from Commodity Trading Advisor (CTA) accounts pushing up Treasury yields, market worries over large fiscal deficits are playing a role.

While we expect yields to fall from here, we acknowledge that with quantitative tightening (QT) by the Fed ongoing and Treasury supply growing, yields could yet rise higher.

China – Waiting for support to come through

Investor sentiment towards China remains poor, but the equity market has stabilised over the last few months (see Exhibit 2). Recent economic data has been (modestly) encouraging. The year-on-year change in imports and exports in September was still negative as activity globally has slowed since the initial post-lockdown boom, but at least the export growth rate was not as negative as feared.

Importantly, economic growth in the third quarter beat market expectations, with GDP growth coming in at 4.9% year-on-year versus the forecast 4.4% increase. Even more encouraging was the annualised quarter-on-quarter change at 5.2%, meaning that as long as growth is at least 3.4% in the fourth quarter (annualised QoQ), the government can achieve its 5% growth target for the year.

In our view, to see China equities outpace global equities rather than keeping pace with them, there needs to be more significant support from Beijing for the struggling property sector and measures to address high local government debt. These twin concerns are depressing domestic consumer and business sentiment as much as they are foreign interest in Chinese assets. We expect support from the powers-that-be to come through, but the timing remains uncertain.

Europe – A less attractive setting  

In contrast to the US and China, eurozone data has generally been coming in below market expectations (see Exhibit 3). German sentiment as well as German and UK industrial production have all disappointed recently, though Italy’s industrial production growth was better than expected.

Inflationary pressures are waning in the eurozone, but only slowly, and we believe the European Central Bank is unlikely to signal that it will be cutting rates anytime soon.

The region is already flirting with recession. Lacking the fiscal stimulus that has so helped the US economy, and with rising natural gas prices and the Middle East conflict renewing concerns about energy prices this winter, Europe faces more negative catalysts than positive ones.


Please note that articles may contain technical language. For this reason, they may not be suitable for readers without professional investment experience. Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns. Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions). Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

Related insights

14:07 MIN
Market weekly – Quality is now key
15:39 MIN
Market weekly – Some calm after the storm

In the U.S., this material is for Institutional use only – not for public distribution. This material is provided for educational purposes only and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be and should not be interpreted as recommendations. Reliance upon information in this material is at the sole risk and discretion of the reader. The material was prepared without regard to specific objectives, financial situation or needs of any investor.

These documents and video clips may also include information obtained from affiliated investment management companies within BNP Paribas Asset Management, the brand name of the BNP Paribas group’s asset management services. The documents and video clips are produced for informational purposes only and do not constitute: 1. an offer to buy nor a solicitation to sell, nor shall they form the basis of or be relied upon in connection with any contract or commitment whatsoever or 2. investment advice. Any opinions included in these documents and video clips constitute the judgment of the author/ presenter at the time specified and may be subject to change without notice.

This material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections, forecasts, and estimates of yields or returns. No representation is made that any performance presented will be achieved by any funds, or that every assumption made in achieving, calculating or presenting either the forward-looking information or any historical performance information herein has been considered or stated in preparing this material. Any changes to assumptions that may have been made in preparing this material could have a material impact on the investment returns that are presented herein. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by BNP PARIBAS ASSET MANAGEMENT USA, Inc. to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy.

The information provided here is neither tax nor legal advice. Investors should speak to their tax professional for specific information regarding their tax situation. Investment involves risk including possible loss of principal. International investing involves risks, including risks related to foreign currency, limited liquidity, less government regulation, and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are often heightened for investments in emerging/developing markets or smaller capital markets.


BNP Paribas Asset Management seeks to integrate environmental, social and governance (“ESG”) factors into all of our portfolios as a means to mitigate certain short, medium and long-term financial risks, identify better long-term investments, and encourage more responsible corporate behavior. We will never subordinate our client’s interests to unrelated objectives. Certain issuers and industries are excluded from our actively managed portfolios based upon our view of their ESG performance and risk profile. As a result, we may pass up certain opportunities when these excluded issuers or industries are in favor. Due to significant gaps in disclosure regimes around the world, we may need to rely upon voluntary disclosures by issuers, which are often not audited. We therefore may not have consistent access to complete, accurate or comparable information about the ESG performance of our holdings. Please consult the applicable offering document for more information about the specific ESG strategy employed by each investment strategy since a given strategy may not have specific ESG guidelines, and investments are not limited to securities that are ESG compatible.

BNP PARIBAS ASSET MANAGEMENT USA, Inc. is registered with the U.S. Securities and Exchange Commission as an investment adviser under the Investment Advisers Act of 1940, as amended. BNP PARIBAS ASSET MANAGEMENT USA, Inc. is a registered trademark of BNP Paribas or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners. © 2024 BNP PARIBAS ASSET MANAGEMENT USA, Inc., All rights reserved.

BNP PARIBAS ASSET MANAGEMENT is the global brand name of the BNP Paribas group’s asset management services. © 2024 BNP PARIBAS ASSET MANAGEMENT USA, Inc., All rights reserved.

To access insights from our teams worldwide visit:
Explore VIEWPOINT today