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Markets rally on the US Weekly Jobless Claims to drop below 300K

The markets were mixed today with risk-on moves in the commodities as economic data signaled less price and labor pressures. With inflation likely to top out soon assuming bottlenecks etc. are resolved and we don’t have a new wave of covid variants, the Feds tapering may not lead to a tantrum.

Market Wrap

The forex heatmap has remained bullish for the commodity pairs and bearish the yen, though this isn’t true risk-on day as the Swiss franc is holding its own against the euro, dollar, yen, and yuan. Following on from the Australian employment data today's focus has been on the US PPI and Initial Jobless Claims data.

According to a report released by the Labor Department, US initial jobless claims (IJC) fell by more than expected down 36,000 in the week ending October 9. The IJC figures with the 4-week moving average at 334,250 dropped to their lowest levels since March 2020.

As a result, the advance seasonally adjusted insured unemployment rate fell by 0.1 percentage points to 1.9% during the week ending October 2. For the same week, the advance number for insured unemployment fell by 134,000 to 2,593,000.

Final demand producer prices (PPI) increased 0.5% in September, seasonally adjusted. The final demand prices increased by 0.7% in August and by 1% in July. For the 12 months ended in September of this year, the final demand index increased 8.6% on an unadjusted basis, which is the largest advance since the 12-month data were first calculated in November 2010. The index for final demand goods rose by almost 4%, led by gasoline. The trend in prices is to the downside, so we could be seeing the start of a deflationary effect.

The drop in the IJC and PPI readings this month gave the US equities markets a massive boost, though the rally had started in the Globex session on the back of less global inflation.

It remains to be seen whether or not there are enough buyers left in this market to get back to all-time highs when we have a Federal Reserve ready to initiate a tightening of monetary policy.

Following on from the US data and into the London close the US dollar index rallied off its day's lows preventing a weekly break of the previous week's lows.

The AUDUSD rallied all day up to the daily 200 ema but hasn’t quite tagged it let alone broken through it. Gold has also rallied today taking out yesterday’s highs and the two charts have been following each other recently.

The bond yields had been tracking the Gold/Copper ratio but we are now seeing these two diverge again. Generally, the indication is that the Copper to Gold Ratio has a strong relationship with the 10-year US Treasury Bond yield and is often mentioned as a leading indicator for interest rates.

TLT the long bond ETF is also rising and has now started to test previous support levels around the 145.80 price, having found support last week at previous resistance. If the Copper/Gold ratio continues to push higher, then we could assume that rates are going higher and that the TLT could find these levels too much and once again retreat lower. If the TLT powers though on continued strong demand, the rates curve will generally lower, and we could see some pressure on the Copper/Gold spread. Copper is generally considered an economic activity leading indicator with gold in the camp of safe haven, hedging cohort.

Another leading indicator of economic activity is the crude oil market and today’s crude inventories saw a massive build. The EIA weekly crude stocks jumped to 6.088 million barrels. Far greater than the expected draw to 0.702 million.

The draw on gasoline and Cushing may be enough to keep the oil markets green today and momentum along with price action still favours the bulls.

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