US stocks tumbled as job strength remains, which means we most likely won’t be seeing a Fed downshift at the next FOMC meeting in November. Treasury yields rose alongside the US dollar after another solid nonfarm payroll report.
The risks of the Fed remaining aggressive with the tightening of monetary policy still remains on the table. The labor market is losing momentum, but wage pressures are not easing just yet. The labor market is still strong and inflation is not dropping quickly, which still means the Fed could take rates as high as 5% and that will break parts of the economy.
Wall Street has been bombarded with a swathe of Fed speak that remains committed to fighting inflation and that hawkish shtick will continue. It remains all about inflation, so this NFP report will serve as an appetizer for next week’s inflation data.
NFP
The US economy added 263,000 jobs in September, slightly higher than the consensus estimate of 255,000. The unemployment rate unexpectedly dropped from 3.7% to 3.5%. Despite the loss of over a million job openings in August, a lot of strength remains in the labor market given how low jobless claims is trending. Even if we see some pricing relief, a strong jobs market will allow the Fed to lean towards the hawkish side.
War in Ukraine
The longer the war in Ukraine lasts, the risk grows that President Putin could resort to using Russia’s tactical nuclear weapons. President Biden voiced his concern over the Russian President Putin’s nuclear threats. Biden said, “First time since the Cuban missile crisis, we have a direct threat of the use (of a) nuclear weapon if in fact things continue down the path they are going.”
FX
Currency traders are waiting to see what will happen as we approach the October 14th end date for the BOE’s bond buying plan. This week, yields surged when the BOE refrained from gilt purchases. Financial stability concerns remain elevated if the BOE doesn’t put something in place before the October 14th deadline. A new facility might need to be created but until that happens, all eyes will be on how longer-term gilt yields behave.
The dollar edged higher after the NFP report kept traders eyeing a 75 basis-point rate hike at the next FOMC meeting.
Oil
Crude prices held onto the majority of this week’s OPEC+ driven gains after the NFP report showed the labor market remains strong but is showing signs of cooling. A strong dollar is eating away at some crude’s weekly gains, but that won’t have a lasting impact.
OPEC+ showed their cards this week and that will keep oil markets very tight as we approach winter. OPEC+ has done whatever it takes and is now awaiting to see what the reaction will be from world leaders. The risks of $100 oil are easily back on the table and if it is a cold winter, we could see $110 before the end of the year.
Gold
Gold prices edged lower after a solid NFP report kept aggressive tightening by the Fed on the table. Gold could be vulnerable leading up to next week’s inflation data as Wall Street wanted to see a much cooler NFP report today. The economy is not breaking down as fast some traders were anticipating. If next week’s inflation does not deliver any cool surprises, a Fed pivot seems far away. Massive positioning might wait till Thursday’s inflation report, but until then, gold is vulnerable to a further slide towards the $1680 level.
Crypto
Cryptos declined after the nonfarm payroll report supported the Fed’s recent messaging about remaining aggressive with fighting inflation. Bitcoin still seems poised to remain in its consolidation pattern, but that could change after next week’s inflation report.
