United States: As we approach the crucial monthly employment report on Friday, the strikes involving East Coast and Gulf dockworkers draw attention, as they are set to begin without further negotiations. Predictions suggest that each day of port closures could require five days to clear up backlogs post-strike. Market attention has rotated from inflation concerns to labor market conditions. The nonfarm payroll report on Friday remains a focal point, with the Federal Reserve underscoring the importance of its full employment mandate amid increased confidence in meeting its price stability goals. While the Fed projects the unemployment rate to edge up to 4.4% by year-end and remain there next year, some skepticism persists due to the non-linear nature of unemployment trends. Nonetheless, this outlook aligns with Bloomberg’s recent survey findings. The JOLTS report and ADP estimate of private sector jobs could introduce some variability, but substantial market impact is likely from significant deviations in job growth or the unemployment rate. At the same time, the market has priced in a full 75 basis points in Fed rate cuts across Q4’s two meetings, suggesting further cuts could be considered with any surprisingly weak employment data. Despite expectations of rising growth profiles and savings rates potentially bolstering market sentiment, the two-year yield remains pinned near its lows around 3.50%. Fed funds futures are implicating another 200 basis points in cuts by mid-2025.
Eurozone: Market sentiment has considerably shifted toward the likelihood of the ECB cutting rates at its October 17 meeting. What was seen as a 40% chance last week now hovers near 80%. This shift was influenced by unexpectedly low French and Spanish CPI readings over the weekend, with further encouragement from the sustained speculation of significant moves by the Federal Reserve. On a harmonized EU basis, France’s CPI dropped from 2.2% to 1.5% and Spain’s from 2.4% to 1.7%. Germany’s states are reporting today, anticipating similar drops below 2%. Tomorrow’s eurozone aggregate estimate is forecasted to remain flat, taking it down from 2.2% to 1.9%. The euro, having pushed above $1.12 on multiple occasions since late August, continues to struggle with sustaining this level. Today marks another attempt, reaching nearly $1.1210. Options for a billion euros are set to expire at $1.12. Additionally, the euro hasn’t closed below $1.11 for the past two weeks. With the broad dollar still perceived as oversold and US two-year premiums over German equivalents widening, there’s an expectation for continued near-term sideways trading.
United Kingdom: Sterling set a marginal new high near $1.3435 over the weekend but settled closer to $1.3375, later recovering to almost $1.3425 today. Momentum appears to be stalling after a strong recovery from early September lows, yet the consolidation still appears constructive. A drop below $1.3300 could suggest a near-term peak. Additionally, the euro may be bottoming against sterling, recently approaching GBP0.8300, a low not seen since April 2022. Reclaiming GBP0.8375 may signal further upside corrections.
China: Ahead of the Golden Week holiday, China’s PMI and the Caixin figures have been overshadowed by significant policy measures introduced recently. As a result, Beijing’s cut in existing mortgage rates has driven Chinese stocks notably higher. The CSI 300 index soared by 8.5%, contributing to a more than 25% increase over the past five sessions. The Hang Seng also gained 2.8%, up nearly 16% in five sessions. When mainland markets, closed until next Tuesday, typically remain silent, market participants choose a cautious approach as the offshore yuan trades in a limited range before the holiday.
Japan: Prior to his official prime ministership, the Liberal Democratic Party’s new leader, Ishida, announced a snap election for late October. Despite low expectations for an imminent Bank of Japan interest rate hike, the unexpected drop in industrial output alongside slowing Tokyo CPI rates seems to fortify such assumptions. Industrial production declined by 3.3% in August, against a median expectation of just a 0.5% drop. Contrastingly, the retail sector showed slight improvements with a 0.8% rise in sales for August. Tomorrow will feature August’s employment data alongside the Q3 Tankan Survey. The yen, emerging as the most volatile G10 currency with a 3-month implied rate of 11.7%, fell after plummeting to nearly JPY141.65 today. The yen has rebounded to around JPY142.60, influenced by stronger US rates. The dollar’s performance against the yen might be restricted around JPY143.
Canada: Light economic data this week includes the PMI and IVEY surveys as the highlights for Canada. Notably, in spite of general currency performances, the Canadian dollar struggled against the US dollar throughout this month. After hitting a seven-month low near CAD1.3420 mid-last week, things wrapped closer to CAD1.3515. Today, a narrow trading range between CAD1.3500 and CAD1.3525 was noted, with technical resistance expected between CAD1.3535-60. Above this, CAD1.36 might be a subsequent level to watch.
Australia: The Australian dollar’s momentum has carried it above $0.6900 for the first time since March, reaching $0.6940 today, propelled by China’s economic stimulus measures. Since the September 11 US CPI report, the currency has rallied close to 5%. However, momentum indicators are showing signs of exhaustion. A close below $0.6870 could signify fatigue in the market.
Mexico: While the Mexican peso appears vulnerable, trading remains subdued today. The dollar posted its highest settlement since September 11 ahead of the weekend. With Sheinbaum’s inauguration imminent, there’s anticipation for a brief honeymoon period in financial markets. However, any move above MXN19.75 could drive a retest of MXN20.00 and the month’s high around MXN20.15.
