Global financial markets lost most of their early-week gains by the end of the week as a strong US employment report took centre stage.
Forex
Source: Bloomberg. Click to see full size.
Despite its initial advance, EUR/USD failed spectacularly at parity, ending the week at just under $0.9750, resulting in a slight weekly loss.
Traders believed that the growing likelihood of a worldwide recession would push central banks to decrease the pace of quantitative tightening sooner than later. However, the positive mood didn’t last long, and the pair began losing strength after more sanctions were imposed on Russia as a result of the illegal annexation of Donetsk, Luhansk, Kherson, and Zaporizhzhia.
On the other hand, the US Federal Reserve (Fed) continued with its hawkish approach. There were 263 thousand new jobs added in September, which was better than expected, but the numbers were lower than the previous month. The unemployment rate fell unexpectedly to 3.5%, while the Labor Force Participation Rate decreased to 62.3% from 62.4% in August. After a row of discouraging US employment reports, September’s report came as a welcome relief.
Meanwhile, the pound fell on Friday, 7 October 2022 after stronger-than-expected nonfarm payroll data retraced most of its weekly gains. The fragile state of UK fiscal policy measures has added pressure on the GBP. The currency continues with its bearish trend even as the UK government attempts to stabilise bond markets after Chancellor Kwasi Kwarteng announced a tax cut.
In other currency news, the Australian dollar fell as the Reserve Bank of Australia (RBA) stumbled in the fight against unpredictable inflation. In light of continued pricing pressures nationally and abroad, their raise of 25 bps to 2.60% last week was viewed as dovish.
This week’s focus is all on inflation, with the September US Consumer Price Index (CPI) set to be released. The annual inflation is expected to rise by 8.1% this year, slightly better than the previous 8.3%. Furthermore, the US Federal Reserve will publish the minutes of its most recent meeting.
The UK labour market data will be released this week, and the Bank of England’s comments will set the tone for the GBP/USD pair ahead of the UK monthly GDP.
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Commodities
Source: Bloomberg. Click to see full size.
In the first part of last week, gold gained, but most of its gains had been lost by the end of the week.
Gold gained traction as the market mood improved, making it difficult for the greenback to find demand. Furthermore, a nearly 5% drop in the benchmark 10-year US Treasury bond yield on Monday, 3 October 2022, lifted XAU/USD by more than 2% – its biggest one-day gain since March 2022.
However, the US dollar recovered its strength as the days passed, thanks to higher-than-expected non-farm payrolls in September and a decrease in unemployment rates from 3.7% to 3.5%. In response to the job report, the 10-year Treasury bond rose by around 4%, causing gold to return to $1,700 ahead of the weekend.
On the other hand, oil prices gained the most since early March due to a weak supply outlook that offset lingering macroeconomic concerns. Even though demand fears remain front and centre in equity markets, supply fears appear to be driving this week’s market action.
A combination of the Organization of the Petroleum Exporting Countries (OPEC+) cuts and the impending European sanctions on Russian crude is likely to leave the market vulnerable at the end of the year. Plus, Russia reiterated last week that it would not sell oil to countries adopting a US-led price cap, adding to the supply uncertainty.
According to forecasts, the consumer price index (CPI) will increase by 8.1% year-over-year (YoY) in September, down from its August reading of 8.3%. The annual Core CPI excludes volatile food and energy costs and is expected to rise from 6.3% to 6.5% this year.
Cryptocurrencies
Source: Bloomberg. Click to see full size.
Major cryptocurrencies experienced yet another flat week.
On Tuesday, 4 October 2022, Bitcoin traded above the $20,000 level. However, due to a lack of trading activity, it failed to hold above that mark.
That being said, Bitcoin’s market dominance has increased by 2% in the last month. Based on the chart, Bitcoin is trading at $19,486.54 and has gained 1.31% over the past 7 days.
Meanwhile, Ethereum failed to show any significant movement in either direction and inched up by 0.3% in the last week. The second-largest cryptocurrency could not find a new support level and kept hovering in the $1,300 range all week. Macroeconomic factors seem to have perforated the ‘merge shield’ as Ethereum, too, feels the heat of the rising interest rates and inflation.
Moving away from Bitcoin and Ethereum, the rest of the major cryptocurrencies traded sideways as traders moved away from riskier assets.
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US stock markets
|
Name of the index |
Friday’s close |
*Net change |
*Net change (%) |
|
Dow Jones Industrial Avg (Wall Street 30) |
29,296.79 |
571.28 |
1.99% |
|
Nasdaq (US Tech 100) |
11,039.47 |
68.25 |
0.62% |
|
S&P 500 (US 500) |
3,639.66 |
54.04 |
1.51% |
Source: Bloomberg
*Net change and net change (%) are based on the weekly closing price change from Friday to Friday.
Most of the gains that stock indices saw throughout the week were wiped out because certain data showed that the economy was not slowing enough for Federal Reserve policymakers to be satisfied. Oil prices surged following a pact by major producers to reduce global output, making energy the standout performer of the S&P 500 Index.
Stocks slumped on Friday, 7 October 2022, after a strong monthly employment report fueled anticipation that the US Federal Reserve will hike interest rates by 75 bps at its next meeting. Signs of labour market strength heightened inflation worries. The US Labor Department reported on Friday, 7 October 2022 that the economy added 263K jobs in September, and the unemployment rate fell to a multiyear low of 3.5%.
While last week’s labour market trends were crucial, the September inflation number due on Thursday, 13 October 2022, will likely affirm or derail the quarter’s promising start. A lower-than-expected CPI might support the idea that the inflation peak has passed, but an increase could prompt further rate rises.
Another indicator to watch will be the third-quarter results season, which will provide insight into corporate profitability.
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