SW Weekly Market Update 2 1

Weekly market update 10 October – Dollar strength muted after disappointing jobs data, FOMC minutes in focus this week

Weekly market update 10 October – Dollar strength muted after disappointing jobs data, FOMC minutes in focus this week

1. The US Dollar’s bullish momentum was muted after Nonfarm Payrolls data released on Friday disappointed. The U.S. economy added only 194,000 jobs in September, a far cry from market expectations of 500,000 jobs, resulting in the second consecutive month of nonfarm payrolls data falling below expectations. Investors are now waiting to see if the Fed will continue its plan to begin reducing stimulus as soon as November this year, given the poor performance in the jobs market recently. Although the Nonfarm Payrolls fell short of expectations, the unemployment rate in the U.S. stands at 4.8%, the lowest since March 2020, partly attributed to a decline in labor force participation among women. Elsewhere, Washington reached a deal to raise the debt ceiling into early December, and fears over rising inflation were abated after rising energy prices finally eased. Moving ahead, investors will be looking at the CPI data released as a gauge of inflation in the US, as well as core retail sales data scheduled to be released late next week.

2. The British pound traded above $1.35, trying to recover from a nine-month low of $1.34, buoyed by expectations that the Bank of England will be raising rates sooner than expected. FTSE 100 climbed 1.2% to 7,078 on Thursday, the highest since September 30th. The unemployment rate releasing on Tuesday as well as GDP released on Wednesday could provide further clues on the Bank of England’s stance for tapering. Meanwhile, the Euro changed hands at $1.155 in early October, hovering around its weakest level since July 2020. Keeping in mind that European Central Bank President Christine Lagarde reiterated the recent increase in inflation was transitory and committed to keeping the current accommodative monetary policy, while both the US Federal Reserve as well as Bank of England are likely to scale back on asset purchases as early as the end of this year, these factors set the stage for a weaker Euro. On the data front, Eurozone retail sales rose by 0.3 percent from a month earlier in August 2021, trying to recover from a revised 2.6 percent slump in July but missing market expectations of a 0.8% growth. Looking ahead, investors will turn their focus to the European Council Meeting next Friday in Brussels for the setting of general political guidelines and the ZEW Economic sentiment data which would reflect investors’ morale.

3. Elsewhere, the Reserve Bank of Australia kept the cash rate unchanged at a record low of 0.1% during its October meeting as expected, while continuing its plans to trim the purchase of government bonds to $4 billion a week until at least mid-February 2022. On the data front, both retail sales and imports fell in the month of August with a 1.7% and 1% drop respectively. Meanwhile, New Zealand Dollar hovered near September’s low despite the central bank raising interest rates for the first time in seven years and signaling that further moves were likely. Crude Oil rose to $80 a barrel, buoyed by rising demand and limited supply as the global energy crunch shows no signs of easing. In the latest OPEC meeting, they have decided to stick with its 400,000 BPD increase in crude output quota for November. Gold prices also extended their gains, surpassing $1770 an ounce on the back of a weaker dollar as the markets digested the disappointing Nonfarm Payroll numbers, easing pressure on the US Federal Reserve to cut back on its monetary stimulus.

Salzworth Asset Management