Friday’s US jobs data was a big miss, with only 235K new nonfarm jobs added in the month of August versus more than 700K penciled in by analysts.
But bad news was mostly interpreted as good by the global equity markets, as the soft data revived the expectations of a delay in Federal Reserve (Fed) QE tapering.
As such, Asian and European stock markets kicked off the week on a positive note.
Interestingly, the inflation-boosting leg of the US labour data was mainly ignored by the average investor. The average hourly earnings accelerated at the pace of 4.3% on yearly basis versus a slight decline from 4.1% to 4% expected by analysts. This means that the base case scenario is still the beginning of the Fed taper before the end of this year.
Therefore, we shall see a limited upside potential in the US equity markets before Friday’s PPI release.
As expected, the Reserve Bank of Australia (RBA) kept its policy unchanged. Later this week, the Bank of Canada (BoC) and the European Central Bank (ECB) should also maintain the status quo.
Though, on the ECB front, there is a growing expectation that the ECB could start talking about tapering its bond purchases sooner rather than later, given that European inflation hitting 3% at last week’s release revived the ECB hawks who have been in a retreat for the past year, but who won’t stay quiet for longer facing the rising inflation threat.
The EURUSD rallied to 1.19 on Friday and should gather further positive momentum on the back of increasingly hawkish ECB expectations, and some softening in the Fed expectations following the soft NFP read. The Fed will still act before the ECB, but the EURUSD should continue pricing out the prior ECB dovishness, and the narrowing divergence in Fed/ECB expectations should encourage the EURUSD to the 1.20 mark in the coming sessions.
In equities, the hawkish shift in ECB expectations could dent appetite in DAX and trigger some profit taking.
In commodities, post-NFP gains in gold remained limited. A sizeable retreat in equities is the only option for gold to shine along with high inflation concerns. Therefore, unless we see a further turmoil in US equity markets – which I don’t see coming in the coming sessions, the upside in gold should remain capped within the $1830/1850 area.
Oil is under pressure on news that the Saudis cut their October selling price to Asians by at least a dollar per barrel on all grades. At the actual levels, we shall continue seeing a good resistance in oil prices for a further retreat in the medium run. The selling pressure should be backed by potentially slower recovery in global oil demand due to the rising Covid cases worldwide.
Finally, buy $30 worth Bitcoin is the major topic on crypto discussions in social media. Talks of a collective pump pushed the price of a Bitcoin to almost $53K, the highest level since May. But so far, what we have seen in terms of price action is far from a successful collective move, as the one we saw in GameStop shares.
And we may not see Bitcoin rise to the moon today, as most market pricing happens as the rumours rise. As such, price action on ‘buy $30 worth of Bitcoin rumour’ is probably done by now, and we could rather see the market ‘selling the fact’ at the current levels.
But in term, the step taken by El Salvador is a fundamental positive for Bitcoin and other cryptocurrencies which are granted the first status of a legal currency. That’s a big step.
