The Market Week – October – Week 1  

The Market Week – October – Week 1  

Yields remain the key driver of markets as Q4 kicks off, the Greenback remains on bid and stock markets remain under pressure. The Evergrande saga hangs over Asian markets as the threat of contagion persists.  The US government could still run out of cash by October 18, as the wrangling continues. The RBNZ increased interest rates but the RBA remained Dovish.

Still to come this week: more PMI data, more central bank speak and top of the shop US Non-Farm Payroll and Canadian jobs data on Friday.

The number and quality of the US jobs recovery grinds on and will be central to the FED’s taper timeframe for later in the year. The weekly US unemployment claims ticked higher yet again last week, to 362,000, from 350,000. US ADP reported private payrolls increased 568,000 in September, a little better than expected, signaling slight upside risk for Friday’s jobs data, though the ADP data remain an unreliable predictor of monthly payroll swings. The September NFP headline is expected to be 490,000, with the unemployment rate at 5.1%.

The vaccine rollouts continue to drive sentiment, and the Delta variant remains a significant concern. In Asia lockdowns are beginning to ease and the vaccination rates continue to improve. However, as booster jabs start in Europe, and double vaccination levels breach 80%, low-income country vaccination rates remain very low.

The Greenback remained bid this week, with a stronger Dollar weighing on all the Majors and EM currencies, in particular. The USDIndex rallied to new 1-year highs at 94.50, EURUSD sank under 1.1550, USDJPY pushed towards 112.00 and Cable tested 1.3400 before recovering.

The US stock markets closed September on a down note and have remained weighed as the new quarter starts. All three indices remain well below their 50-day moving averages. This week the USA500 has posted 14 days under the 50 MA and tested as low as 4260. Technology stocks were the worst performers, with the USA100 at a new 70-day low, and the USA30 printed a new 73-day low.

Gold rallied from September lows at $1722 to close over the 20-day moving average at $1765 on Monday, before declining again as the strong USD and rising yields weighed once more, struggling to hold $1750.

USOil prices continued to soar, touching 7-year highs as demand outstrips supply, inventories continue to be drawn down and OPEC+ did not increase production more than the 400,000 barrels a day they had suggested before their Monday meeting. This week the price peaked at $79.35, within sight of the key $80.00. Before decline to $76.50 as EIA inventories surprisingly rose by 2.3 million barrels.

The yield on the US 10-Year Treasury Note remains very much in focus and a key market mover. A very significant rally once again to 1.567% had repercussions for the Dollar, Stock markets and Commodity prices.  A more hawkish FED, and rising inflation, suggests the taper timeframe will commence in November, assuming the NFP does not post a big downside surprise on Friday.