In the run-up to what the market perceives will be a tightening of monetary policy in November, attention has been focused on US monetary policy and political thuggery. The can have been kicked down the road by 2 months so we will be back to uncertainty in December.
Focus today will be the NFP number, unemployment figure and earnings data and expectations are for a boost in headline figures to cement the tapering in November.
The US dollar index has started on a strong note today and following on from yesterday's inside trading range, this morning’s moves have broken to the upside and are probing into the resistance zone. Good data from the US today could be the catalyst for a pop higher as the DXY has probed the $94.50 level a couple of times now, which will have removed most of the supply.
In today's non-farm payrolls, the markets are expecting an increase of 500k jobs per month. Several analysts' predictions range from 250k to 700k, so anything outside those ranges would move the market. The Federal Reserve Chair Powell stated that today's figure does not need to be particularly good to meet the criteria for tapering asset purchases, which are likely to begin in November. A slight dip in the August unemployment is also forecast, while average earnings should increase from last month to 4.6%.
Last fiscal year saw the US deficit grow towards $3 trillion and if it were to grow larger due to increased spending without taxation this level of the deficit would be used as a political hammer to crush the Democratic Party at the next election.
As a result of yesterday's Senate vote, the country's debt ceiling was raised until December 3, temporarily ending the stalemate between the Democrats and Republicans. With 11 Republicans voting for the Democrats, the bill passed 50-48, breaking the filibuster. In an earlier announcement, Senate Majority Leader Chuck Schumer said a deal has been reached between the two parties regarding an extension of the debt ceiling, which the White House called "some breathing room," but said that the issue remains open.
Now that a couple of major hurdles have been pushed into the month of December the markets should be able to shift their focus back towards the monetary policy of the Fed. I am keeping an eye on the weekly S&P500 and the moves around the 20-period ema. A close below that dynamic support could be the signal that the bears are waiting for to show the market's weakness. I am aware that after such a lengthy bull move, the first major correction is usually down to the bull’s taking profits. If there are significant breaks in the market structure after they are done taking profits, the bears then step in and we get an acceleration lower.
Data from Germany's Federal Statistical Office Destatis this morning showed German foreign trade surplus declined to 10.7 billion euros in August, from 17.9 billion euros in July. Seasonally adjusted, this surplus came to 13 billion euros. In August 2021, exports totaled €104.4 billion, down 1.2% from the previous month but 14.4% higher than August 2020.
German imports from other EU countries climbed 11.2% in August and exports to those countries jumped 15.7% over the same period last year. This is another poor data point out of Germany around their manufacturing and exports, which will weigh heavily on the single currency.
The weekly EURUSD chart is showing how weak the single currency is and this is helping to support the US dollar index. Major support levels for the EURUSD are towards the 1.1400-1.13500 levels, so a visit to 1.1500 is quite likely. To the upside, the weekly 20-period moving average is now under the 50-period moving average so momentum is building to the downside.
News out of China this morning showed that in September, the Caixin Services Purchasing Managers' Index (PMI) rose to 53.4, according to IHS Markit. The figure was 6.7% points higher than the previous month. September also saw an increase in total new work, as services companies reported increased sales, and manufacturing firms saw an increase in new orders overall. There are still major disruptions due to COVID-19 but the jump today in the Caixin figures is very encouraging.
The CNY is one of the strongest currencies this morning with the yen coming in the weakest. The Australian dollar couldn’t capitalize on the good news out of China as the RBA’s financial stability report detailed some worrying figures. In the report, the RBA stated that there is a risk of excessive borrowing due to low-interest rates and rising house prices, with some borrowers struggling with loan repayments. The spread of the Delta variant and ensuing extended lockdowns in New South Wales, Victoria, and the ACT has resulted in output and employment falling in the September quarter.