Friday’s US jobs data wasn’t exactly what investors had wished for. The US economy added 263’000 new nonfarm jobs in September (slightly higher than 250’000 expected), the wages grew 0.3% over the month (as expected), but the unemployment rate surprisingly fell to 3.5%, as the participation rate fell slightly.
That was the exact opposite of what could’ve been great for the Federal Reserve (Fed) expectations.
But alas, the US unemployment rate printed last Friday was the lowest number since 1969 and came as another proof that whatever the Fed does, the US jobs data remains robust.
As a result, the Fed hawks came back in force following the US jobs data on Friday. The US yields rose, the S&P 500 slumped 2.80%, and erased most of the gains it recorded earlier in the week, while Nasdaq slumped 3.80% and closed the week flat, a touch above the 11’000 level.
Today’s is bank holiday in the US and Canada; investors will have another day to digest the Fed-unfriendly US jobs data, but then, inflation figures will be under the spotlight for the rest of the week.
Wednesday’s PPI, and Thursday’s CPI figures are of utmost importance for the Fed expectations. The US producer prices are expected to have eased from 8.7% to 8.3% in September, while the consumer prices may have slowed to 8.1% from 8.3% on the back of a retreat in energy prices during last month. But core inflation may have continued rising
Activity on Fed funds futures gives around 77% chance for a 75bp hike in FOMC’s November meeting. The US dollar continues pushing higher, while other major and emerging market currencies continue diving deeper into the mud. The EURUSD kicks off the week below 0.9750, as Cable is again on its way to meet the 1.10 mark. The British gilt market is shaky on fear of what will happen when the BoE stops buying the bonds.
No more safe haven
In what used to be the safe haven space, the appetite remains less than ideal as well. The dollar-swissy is flirting with parity even with the escalation of tensions in Ukraine following the explosion of the bridge between Russia and Crimea.
Gold is back below $1700, after having bumped into solid resistance near the 50-DMA last week. The US dollar remains too strong, and US yields too appetizing to let gold move any higher.
We can say that another week kicks off with the King dollar, leaving all, including gold and the Swiss franc under its big, dark shadow, except oil.
Oil climbs before Biden’s – and the world’s – desperate eyes
Crude oil continues its journey north, since OPEC announced to trim production by 2 million barrels last week. The barrel of American crude spiked to $93.50 last Friday, and consolidates around $92 at the time of writing.
We know that US President Joe Biden will to anything and everything in his power to pull the prices lower, at least before the mid-term elections due November. But he is running out of options.
After releasing millions from the US’ strategic oil reserves and trying to be friends with Saudi again, in vain, he is now looking to release even more from the reserves, limit exports, scale down sanctions on Venezuela and gather a NOPEC bill – No Oil Producing and Exporting Cartels – to reduce OPEC’s influence in global oil markets. And If nothing works, he is trying to get some sympathy by pardoning Americans who were convicted of possession of pot.
Let’s see if any of that – except from pot bill, could give cold feet to oil bulls, looking toward the 200-DMA that stands around $98 per barrel, as a next natural target.
The rising oil prices also fuels inflation expectations and Fed hawks, and weigh on global risk appetite and equity valuations, except for oil stocks. Though a bit softer on Friday, Exxon closed last week above the $100 per share. While Tilray jumped 30% on Biden’s marijuana news, but tanked near 19% on Friday.
The US earnings season kicks off with big bank earnings due this week. Strong earnings is the only thing that could relieve the Fed pain for equity investors.