Fed Chair Powell had stated that the NFP today didn’t need to be great for the Fed to taper in November’s FOMC meeting, but they may need to consider a pause if the markets continue to correct what has been a very extended bull run. Tapering and risking a tantrum just before the Debt ceiling etc. must be renegotiated in December may just be too much of a risk.
Labour data from the Bureau of Labour Statistics released today revealed that nonfarm payrolls increased by 194,000 in September. This was far less than the 500,000 jobs expected and the algo’s initially reacted to the data by selling the US dollar.
According to the US data, unemployment in September dropped by 0.4 percentage points to 4.8% from estimates of 5.1%, and there were 7.7 million fewer unemployed in September than in August. In September, the labour force participation rate was 61.6% which will be worrying for the Fed, which really needs this ratio to rise if they are to meet their mandate of full employment. Leisure and hospitality employment rose by 74,000, while professional and business services employment increased by 60,000, with retail employment rising by 56,000.
Market participants may have bought safe-haven assets because of disappointing US employment data but the advance in gold prices by 1.12% to $1,780 per ounce was unwound relatively quickly. Apart from the usual liquidity grab during these Tier-1 events, there was genuinely not an easy directional trade to take. On one hand, you had the headline figure coming way under the worst of expectations but on the other hand, you get higher wages and lower unemployment.
If the inflation narrative was correct surely the US dollar would be weakening by now? The trade-weighted dollar has been rising for almost the entire 2021 period apart from the dip from April into the June FOMC meeting. US GDP has also taken a turn for the worse since the summer as the Atlanta Fed’s GDPNow indicator shows that they are predicting a fall to 1.3% for GDP in the third quarter. In the past, a falling US dollar has been great for the US economy and the long-term trend is for a lower trade-weighted USD. A rising US dollar has traditionally been bad, especially for the countries that have debt denominated in the greenback. Expect emerging markets to lose their ability to access US dollar-denominated funding soon, and some worse than expected market corrections. Regardless of whether the Fed raises interest rates or not.
Census Bureau data showed that wholesale inventories in the United States jumped 1.2% in August compared with the previous month's revised number. Total inventories stood at $731 billion at the end of the month, resulting in an annual increase of 12.3%. Rising inventories could be a sign of economic activity in the factories and ports but also a lack of economic demand. The report gives no explanation of what their findings mean but when you have more of something the cheaper it usually gets, which is deflationary. The report stated, “August 2021 sales of merchant wholesalers, except manufacturers’ sales branches and offices, after adjustment for seasonal variations and trading-day differences but not for price changes, were $595.5 billion, down 1.1% (±0.5%) from the revised July level but were up 20.6% (±1.8%) from the revised August 2020 level.” Falling sales could be a sign of economic slowdown so we will need to keep an eye on that too.
This morning’s forex trade idea has at least gone in the correct direction, but it left the 88.250 level without offering any decent entry on the lower time frames. The second part of the trade which was to wait for a breakout, retest, and continuation will also hopefully offer some entry.
The US dollar is clearly in a consolidation pattern with today’s candle showing indecision on which way the market will go. Waiting for a move out of the $94.50 to $93.50 range is advisable.
The weekly S&P500 looks to have held above the 20-period moving average which is medium-term bullish. Unfortunately, on a daily chart, the market structure is less bullish, with clear lower highs and lower lows being capped by the dynamic resistance of the 20 & 50 ema. The push lower towards the 4200 could start at a break of today’s lows. That would make the daily 200 ema the target and possibly the weekly 50 ema.
The moves in Brent today missed out on making a new intraday high for the week but still look very bullish even if today’s price action closes flat. Momentum generally lifts price action, so I am keeping the $90 per barrel as an upward target.