Mike Dolan provides an update on the US and global markets for the day ahead.
Wall Street weathered a tough start to the quarter quite well this week, with the September jobs report now an obvious final hurdle on Friday and rising oil prices a source of irritation, although a three-day strike in American ports ends.
As has been the case for weeks, markets are trying to balance signs of persistent growth, but at a slow enough pace to support disinflation and hopes of interest rate cuts from the Federal Reserve .
Labor market results since the start of the week certainly argue in favor of the first hypothesis, although strong employment growth and the relatively modest rise in oil prices due to tensions in the Middle East have raised some questions on speculation regarding the easing of monetary policy by the Federal Reserve.
At least the threat of this week’s port strike fueling retail price hikes appears to have been averted. U.S. ports on the East Coast and Gulf Coast began reopening late Thursday, after dockworkers and port operators reached a wage deal to end the industry’s largest work stoppage in nearly half a century.
As Chicago Fed chief Austan Goolsbee noted Thursday, retailers and manufacturers had stockpiled about two weeks’ worth of stocks in anticipation of the strike, which should be enough now that the conflict is finished.
This week’s rise in crude oil prices, compounded by US President Joe Biden’s comments on Thursday that Israeli retaliation for Iran’s rocket attack could target Tehran’s oil facilities, has become a prospect more unpredictable, as nervousness linked to weekend events could keep traders on edge.
Despite the jump in crude prices this week, oil prices have only returned to their level of a month ago and continue to record annual declines of more than 10%. U.S. retail gasoline prices remain near their lowest level in eight months.
The stage is therefore set for the September jobs report on Friday, with consensus forecasts of 140,000 new jobs last month – close to those in August – and an unemployment rate stable at 4.2%.
Most of the week’s employment updates – private sector employment figures, jobless claims, job openings and layoffs – show the jobs market remains in relatively good health.
So, despite all the headwinds this week, the S&P500 is down just over 0.5% so far and futures are up until trading opens on Friday. Implied volatility measured by the VIX index, however, remains high, at around 20.
The rate shifts and geopolitics backdrop are trickier for Treasuries, whose 10-year yields rose a net 5 basis points this week to 3.85% but remained near closing Thursday night.
Fed futures prices, with just 66 basis points of rate cuts by the end of the year, tilt in favor of two more quarter-point rate cuts from the Fed this year , rather than one of them which would be a new movement of 50 basis points.
The dollar was the week’s big winner, partly because central banks around the world became more dovish in their interest rate signals, just as Fed expectations were easing.
But the greenback fell slightly on Friday, partly because sterling recouped some of the heavy losses suffered when Bank of England Governor Andrew Bailey spoke of more “activist” easing on Thursday. aggressive” from the BoE.
Bailey’s comments were toned down on Friday by his chief economist Huw Pill, who said “it will be important to guard against the risk of rates falling too much or too quickly.”
Stock markets around the world edged higher on Friday, with Hong Kong’s Hang Seng index resuming its recent meteoric rise thanks to Chinese stimulus plans, after a misstep on Thursday. The offshore yuan has weakened.
In Europe, attention has focused on European Union trade talks which have struggled to find consensus on increasing tariffs of up to 45% on imports of Chinese electric vehicles – with the European automotive sector suffering multiple blows from rivalry and dragging down the region’s industrial economy.
With Germany voting against the tariffs over fears of Chinese retaliation against German carmakers, EU countries failed to vote clearly for or against, leaving the European Commission to decide, EU sources said. EU to Reuters on Friday.
In a subsequent statement, the Commission said the proposal to impose definitive tariffs had gained the necessary support, but that it would continue negotiations with China “in order to explore an alternative solution which should be fully compatible with WTO rules.
Shares of European automakers, which were the worst-performing sector this week with losses of nearly 7% due to the tariff standoff and mounting profit warnings, regained nearly 1% on Friday after the publication of these reports.
Separately, the latest U.S. money market fund data showed assets under management rose again over the past week to a new record high of $6.46 trillion, confusing some who expected money to flow out of these cash-like funds as the Fed’s rate cuts were underway.
Key developments expected to provide more direction to U.S. markets later on Friday:
* September US jobs report; August unemployment rate in Mexico.
* Speech by New York Federal Reserve Chairman John Williams
* Results of American companies: Apogee Enterprises
