North American News
Major US stock indices close lower for the 2nd consecutive day
- US jobs report tomorrow – and higher rates today – keeps the indices in check
The major US stock indices are ending the day lower for the 2nd consecutive day. The Dow led the move to the downside with a decline of -1.15%.
Looking at the final numbers:
- Dow industrial average fell -346.93 points or -1.15% at 29926.95. The index is back below the 30,000 level. It remains just above its 200 week moving average at 29795.73
- S&P index fell -38.76 points at -1.02% at 3744.53
- NASDAQ index fell -75.32 points at -0.68% at 11073.32. It closed back below its 200 week moving average at 11131.69.
- Russell 2000 fell -10.18 points or -0.58% at 1752.51
USD moves higher ahead of the US job report
The Fed rhetoric remains “bullseye focused” on the plan to tighten further into the end of year at least, with 2023 not seeing any lowering of rates. How far up rates go is a different story as they look to kill inflation in its tracks. The Fed has made it’s bed and to expect different than what they have said they were going to do, is unlikely.
As a result, the rates saw another move back higher today which has seen the 10 year extend to 3.823%.That is near the midpoint of the range since the peak on Septmber 28 (high at 4.01% and low at 3.56%). Rates just got to low earlier this week. The move higher in rates has seen the 10 year move up 6.5 basis points today. The 2 year is up 10.4 basis points to 4.25%.
NFP Preview: Forecasts from nine major banks, employment trend slows down
The US Bureau of Labor Statistics (BLS) will release the September jobs report on Friday, October 7 at 12:30 GMT and as we get closer to the release time, here are the forecasts by the economists and researchers of nine major banks regarding the upcoming employment data.
Economists expect a slowdown in US job growth to 250K in September following the 315K increase in August. Meanwhile, the Unemployment Rate is expected to remain steady at 3.7%.
NBF
“Hiring could have slowed down in the month if previously released soft indicators such as S&P Global’s Composite PMI are any guide. Layoffs may also have eased judging from a decrease in initial jobless claims. With these two trends cancelling each other, payroll growth come in at a still decent 250K. The household survey is expected to show a smaller gain, a development which could nonetheless leave the unemployment rate unchanged at 3.7%, assuming the participation rate stayed put at 62.4%.”
Commerzbank
“We expect the labor market to continue to lose momentum only slowly and, from the Fed’s perspective, to probably still be too strong. Thus, we forecast a job gain of 280K, after 315K in August. The unemployment rate is likely to remain at an extremely low 3.7%.”
CIBC
“Early indications of the health of the US labor market in September suggest that hiring continued at a brisk pace, with 240K jobs likely added. That’s consistent with the improvement seen in initial jobless claims and the Conference Board’s labor differential measure. While that pace of hiring would typically cause the unemployment rate to fall, there is still room for participation gains in the prime-age group, and the unemployment rate could have remained at 3.7% with some increase in participation. We’re not far enough from the consensus to see a material market reaction.”
SocGen
“We project a 280K gain. The unemployment rate for September is expected to decline to 3.6% from 3.7% in August. The monthly flows are volatile. If there are no returnees, or if there is a net exodus from the labor force rather than re-entrants, the unemployment rate could drop even more than the 3.6% we project. Wages are expected to rise 0.5% MoM in September. We view the shortfall seen in August, when wages rose 0.3%, as noise in the data rather than the beginning of a new trend.”
Citibank
“US September Nonfarm Payrolls – Citi: 265K, prior: 315K; Private Payrolls – Citi: 245K, prior: 308K; Average Hourly Earnings MoM – Citi: 0.4%, prior: 0.3%; Average Hourly Earnings YoY – Citi: 5.1%, prior: 5.2%; Unemployment Rate – Citi: 3.6%, prior: 3.7%. An overall slowing trend in monthly payroll growth should continue in September and as the Fed acts to weigh on activity, slowing job growth into 2023 will likely also reflect falling demand for labor and likely job losses. The change in the unemployment rate will also be one of the most important aspect of the jobs report. We expect the unemployment rate to decline modestly to 3.6% but with risk that it remains at 3.7%.”
ING
“We for a solid 200K increase in jobs and the unemployment rate staying low at 3.7% – both pointing to another 75 bps hike from the Federal Reserve on 2 November.”
Wells Fargo
“We look for another solid 275K increase. Another sizable increase in labor force participation would be a welcome development for Fed officials as they attempt the high wire act of bringing labor supply and demand into a healthy balance.”
TDS
“We expect more moderation in payrolls in September to 300K, which still represents a strong pace of job growth. We look for this still very solid gain in employment to also be reflected in a decline in the unemployment rate to 3.6%.”
Barclays
“We expect 250K in NFP, steady unemployment and participation rates, and average hourly earnings to move up 0.4% MoM (5.0% YoY). A strong report could drive the market to fully price a 75 bps rate hike in November, expectations of which had declined recently, and this would further support the dollar.”
Fed’s Kashkari: If we get help from supply side I’m more optimistic in avoiding recession
- Comments from the Minneapolis Fed President
- We have more work to do on inflation
- We have to bring inflation down
- I hope we can bring inflation down without causing a recession
- If we get help from the supply side I’m more optimistic in avoiding a recession
- I am very confident we will get through this moment but it might take a year or two
- This moment feels like stagflation but it’s transition
- Economy sending mixed signals
- We are quite a ways away from a pause
Fed’s Evans:Inflation is very high right now, and at the top of our minds
- Chicago Fed Pres. Charlie Evans
- inflation is very high right now, that’s the issue that the top of mind for Fed officials
- there is good amount of strength in the US economy
- I suspect that it unemployment will creep up
- labor market is still good, and will be more challenging with higher interest rates
- we will bring inflation down through making policy restrictive
- we have to look at momentum of core inflation and that’s what has us most nervous
- need a more restrictive seeing of monetary policy because inflation is high
- we have further the going rate hikes
- we are heading to 4.5% – 4.75% by springtime (NOTE the dot plot for 2023 was looking for 4.6% which is within that range)
- I believe balance sheet reduction will be completed within 3 years
- Fed will discuss 50 or 75 basis points at the next meeting
- Policymakers are looking for 125 basis point rate hikes over the next 2 meetings
Commodities
Gold bulls beaten back by the US dollar bulls at key daily resistance
- Gold bears move in at critical daily restaice.
- The focus will be on the US jobs market at the end of the week.
The price of gold is back to flat on the day in what has been a correction of this week’s rally into daily resistance near $1,730. The price fell from a high of $1,725.60 to a low of $1,706.95 but held above the prior day’s lows despite firmer US yields and a stronger US dollar.
Overall, the yellow metal has been more robust of late, making its way back into the $1,700’s this week, recovering from last month’s lows that were made as US bond yields surged to multi-year highs. The sentiment surrounding the Federal Reserve has been the driver, as fickle as it is. However, with data ebbing and flowing in and out of the inflationary territory, the yellow metal has been able to benefit at times of less hawkish speculation surrounding the Fed’s next moves with participants betting on a pivot at the start of the week.
However dovish hopes were dashed following the OPEC+ announcement of big oil production cuts to support oil prices, thereby sending other commodity prices, such as lumber higher:
The classic falling wedge and M-formation is bullish for the outlook in lumber. From sawmills to store shelves, lumber can tell the markets a lot about what’s going on in the US economy and with prospects of higher prices in oil and lumber, inflation would be expected to stay elevated. This in turn coincides with a chorus of Fed’s hawkish speakers this week.
Charles L. Evan who is the chief executive officer of the Federal Reserve Bank of Chicago has said in recent trade that inflation is very high right now and that’s the issue that’s top of mind for the Fed. ”At Fed’s next meeting will discuss whether 50 bps or 75 bps,” he said, adding, ”policymakers are looking for 125 bps of rate hikes over next two meetings.”
Meanwhile, analysts at TD Securities argued that ”in reality, inflation’s rising persistence suggests the Fed is unlikely to stop hiking preemptively.”
”A prolonged period of restrictive rates suggests traders should ignore gold’s siren calls, as a sustained downtrend will likely prevail, while quantitative tightening continues to drive real rates higher.”
”In the meantime, however, the margin of safety against a change in trend signals has eroded, which places a low bar for additional buying activity from CTAs. While the cohort has continued to add to their silver length in recent sessions, gold prices need only rise north of $1755/oz to catalyze a trend following buying program.”
Silver stumbles towards $20.50s on higher US T-bond real yields
- Silver price retreats from its daily highs around $20.85, down by 0.50% on Thursday.
- Fed policymakers remain “resolute” to tackle inflation, pushing back against rate cuts in 2023.
- US unemployment claims exceeded estimates for the first time since July 2022.
- Silver Price Forecast: Neutral-to-upward biased, but the RSI’s is flashing that buyers are getting a respite before attacking $21.00.
Silver price retraces from daily highs of $20.85 as US Treasury bond yield rise due to US central bank policymakers, led by the Minnesota Fed President Kashkari commenting that it would take longer for the Fed to pause rate hikes. At the time of writing, the XAG/USD is trading at $20.54, losing 0.92%.
XAG/USD drops as US bond yields edge up; traders focus on Friday’s jobs report
US equities trading in the red portrays a sour market sentiment. In the last couple of days, Fed officials have reiterated that inflation is too high and that it would be premature to pause or slash rates, even if the economy gets into a recession. Nevertheless, Fed members have been cautious when speaking about the “R” word, though they acknowledged that the US economy is slowing.
In the meantime, US employment data, revealed by the Bureau of Labor Statistics, reported that Initial Jobless Claims for the week ending on October 1 rose by 219K, more than estimates of 204K. Of note that the rise in claims was just the third increase since the end of July 2022.
Even though bad data is perceived as good data for market players, meaning that as the labor market deteriorates, the Fed would likely tighten at a slower pace. Nevertheless, risk aversion persists, as the greenback remains in the driver’s seat as the US Dollar Index rises 0.42%, back above the 112.000 thresholds, ahead of Friday’s US Nonfarm Payrolls report.
Furthermore, elevated US Treasury bond yields keep the precious metals heavy. The US 10-year T-bond rate yields 3.813%, up by five basis points, while the 10-year Treasury Inflation-Protected Securities (TIPS) bond yield, a proxy for real yields, gains the same amount of bps as the nominal bond, remains at 1.60%.
New EU oil price cap must be agreed by Dec 5 or previous blanket ban will go into effect
- EU report on Russian oil price cap
- Cap will have to adapt to market prices and be set below market but at level Russia would still want to sell
- Eigth round of sanctions adds oil cap for transport servies on top of bank ing and insurance
- 27 EU countries will need unanimous decision to approve price-setting mechanism under the cap once tha’s clear within the G7
December 5 is two months away but purchases for oil are starting now so time is tighter than it seems. Notably, there are countries in Europe that still think the ban is the way to go and don’t want any Russian oil in Europe at any price.
Yesterday, Russia’s Novak said it could temporarily stop some export barrels if/when the price cap goes into effect.
Biden says he’s considering alternatives to oil suply after OPEC+ move
- Reports say sanctions could be lifted on Venezuela
The WSJ reported late yesterday that the US is considering lifting sanctions that would allow Chevron to resume pumping oil in Venezuela.
“The country is now exporting about 450,000 barrels a day and could double that figure in a matter of months, say people who are familiar with Venezuela’s oil industry and are bullish about its prospects,” the report says.
The US is now denying that sanctions will be lifted but I wouldn’t put much stock in that. In any case, those numbers sound aggressive (more like two years, not two months) but there could certainly be much more oil over a longer timeframe.
EU News
Major European indices fall for the 2nd consecutive day
- Declines across the board in Europe today
The European stock indices are all closing the day lower. It is the 2nd consecutive down day for the major indices.
- German DAX, -0.37%
- France’s CAC, -0.82%
- UK’s FTSE 100 -0.78%
- Spain’s Ibex -0.91
- Italy’s FTSE MIB -1.03%
In the European debt market, UK 10 year yields moved sharply higher as investors shun the countries debt. The yield moved to a high of 4.243%. Just 2 days ago it was down at 3.735%.
Other News
IMF says risks of a global recession are rising
- Comments from IMF managing director Georgieva
- Countries accounting for one-third of global GDP expected to report at least 2 consecutive quarters of contraction this year or next
- Expects global output loss of $4 trillion by 2026
- Fiscal measures should be targeted, temporary. Policymakers must avoid indescriminate response
- Probability of portfolio outflows from emerging markets has risen to 40%
White House economic advisor Deese: OPEC+ production cuts decision disappointing
- White House economic advisor speaking
The White House US economic advisor Deese is on the wires speaking to OPEC+ decision:
- production cut decision disappointing because it is unnecessary and unwarranted
- lack of oil supply continues to be significant challenge
- we will have to see impact in the market
- in very near term, energy companies need to reduce retail prices to reflect wholesale prices
- continues to look at SPR among other alternatives
Cryptocurrency News
Litecoin Price Prediction: LTC stalls at a crucial threshold
- Litecoin price fails to take off despite rolling down the runway.
- LTC price is in the process of validating a bearish pennant pattern on its 12-hour chart.
- In the absence of a breakout, Litecoin price could consolidate between $50.50 and $55.72 in the short term
Litecoin price is trying to find its footing after lifting from support reinforced at $50.50 and topping out at $55.72. This northbound move would have pushed the token out of a narrow-ranging channel. Bulls will have a challenging time dealing with the bear pennant pattern, suggesting that Litecoin is yet to come out of the woods with losses below $50.50 possible