Market recap: Mixed employment data on Friday keeps markets afloat
US equities recovered on Friday, with the DJIA, S&P 500 and Nasdaq each gaining 1.4% after fears of an economic slowdown eased thanks to positive employment data for September. The NonFarm Payrolls report for last month fell short of its predicted number of 145,000 new jobs, but did record an increase to 136,000. The country’s unemployment rate beat expectations of 3.7%, falling to 3.5% in September, while the likelihood of a Fed rate cut at the end of October also fell slightly to 83.9%.
But the DJIA and S&P 500 did suffer their third overall weekly loss, falling 0.92% and 0.33% respectively over the past seven days, although the Nasdaq managed to advance last week, rising 0.54%. The Dollar Index recovered slightly after falling for three sessions, increasing 0.02% to 98.81 on Friday. As earnings season approaches this week, you can expect the markets to be more cautious – don’t bank on any strong movements from equities.
Meanwhile, safe havens continued to gain, with gold growing 0.15% to 1504 levels and the yen gaining 0.11% against the dollar, closing at 106.94 on Friday. US Treasuries saw little change: two-year yields gained 1bps to 1.40%, 10-year yields lost 1bps and 30-year yields closed slightly lower, at 2.02%
In Asia, The Hang Seng and Straits Times Index closed lower for the third week in a row, falling 0.52% and 1.51% respectively from the previous week. The Nikkei fell for a second week, suffering a 2.14% weekly loss. Markets opened higher on Monday morning, with the Nikkei gaining 0.17% and the Straits Times Index advancing 0.14%.
This week’s highlights include monetary policy meeting minutes released by the Fed on Wednesday. October 9th, 10pm (GMT +4) and by the European Central Bank on Thursday, October 10th, 3.30pm (GMT +4). The minutes will give investors better insight on how divided the Fed is on monetary policy and the outlook of the US and European economies.
Trade talks between the US and China continue later this week, with high-level officials from both countries meeting from Thursday to Friday. Investors expect a partial deal from the two parties, while a long-term agreement still seems far from likely.
Today’s analysis: Is a Fed rate cut in October looking more likely?
US markets were in turmoil last week, as US economic data signaled the country may be suffering from a slowdown in its economy, a likely affect of the US-China Trade War. But those fears subsided thanks to mixed employment data announced on Friday, which gave markets time to recover. Upward revisions to July’s and August’s Change in NonFarm Payrolls report (upward revisions of 7,000 for July and 38,000 for August) also boosted optimism. Major indices in the US each advanced 1.4% as a result.
The Change in NonFarm Payrolls report was below the monthly average increase of 161,000 jobs in 2019 (the average monthly gain of jobs in 2018 was 223,000, in comparison). September’s jobs growth was largely driven by the healthcare sector (which added 39,000 jobs, in-line with its monthly average for the past 12 months) and the professional and business services sector (34,000 jobs, averaging 35,000 additional monthly jobs this year). This suggests that while the labour market is healthy, it is showing signs of a slowdown.
The Average Hourly Earnings report (for all employees on private NonFarm Payrolls) was unchanged in September. The lack of increase in monthly earnings may be a signal that inflation and consumer spending will slow down. The market will likely be looking to Friday’s Consumer Sentiment Index (by the University of Michigan) to get a better indication of the direction of inflation and consumer spending. The market consensus is that it will drop to 92.0, from a previous level of 93.2. We forecast it is more likely to disappoint, falling to 91.0.
A rate cut in October is looking increasingly more likely. Fed Fund Futures indicate the market expects an 83.9% probability of a rate cut this month and we forecast one will be announced at the Fed Monetary Policy Meeting on October 30th, to support the job market and to drive the manufacturing sector in the US. Therefore, the dollar may have more room to fall, likely breaking the 100-day moving average of roughly 98.75, to range between 98.50 and 98.72.
Technical analysis: Dollar Index
The bulls will likely try to retest the resistance level of 98.91 and push the price past the 50-day moving average of 99.05. If tensions between the US and China escalate after this Thursday’s meeting, or if Friday’s Consumer Sentiment Index disappoints, the dollar is likely to break the initial support of 98.72, to range between 98.50 and 98.72 as the bears regain possession from the bulls.