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I. Market focus
Market participants’ attention is focused on the U.S labor market data, set to be released at 12:30 GMT. We have the following picture ahead of their release:
- The U.S. economy is expected to add 185,000 jobs in September versus 201,000 jobs added in August (August’s reading will be revised twice: today and the next month);
- The average value of jobs added is 191,000 over the past 12 months. Over the past six months – 192,000. Over the past three months - 185,000;
Fig. 1 U.S. nonfarm payrolls, month-on-month (Source: The Bureau of Labor Statistics of the U.S. Department of Labor (BLS))
- The unemployment rate is expected to fall to 3.8 percent from 3.9 percent;
- The private sector in the U.S. added 230,000 jobs in September, according to the ADP report on Wednesday. August’s figure was revised up to 168,000 jobs from a previous reading of 163,000. Analysts expected the private sector to add 185,000 jobs;
- The Institute for Supply Management's (ISM) manufacturing employment sub-index for the U.S. rose to 58.8 in September from 58.5 in August; the ISM’s services employment sub-index increased to 62.4 in September from 56.7 in August;
- Job openings rose to 6.94 million in July from 6.82 million in the previous month;
- Average initial jobless claims for four weeks is 207,000, the lowest level since 1969;
- The Conference Board reported that 13.2 percent of the respondents experienced difficulties in finding a job in the last reporting month (versus 12.1 percent a month earlier). At the same time, some 45.7 percent of respondents said jobs were plentiful (versus 42.3 percent a month earlier).
Given the data available at the moment, the average forecasts for the payrolls report look somewhat understated, and it seems very likely that the data will show a bigger-than-expected increase in nonfarm payrolls. However, it should be borne in mind that the payrolls report is based on an analysis of other reports. There are differences between these reports.
Data on changes in average earnings can have a particularly strong influence on the markets’ dynamics. It is expected that the average hourly earnings growth slowed to 0.3 percent m-o-m in September from 0.4 percent m-o-m in the prior month.
II. The market highlights are:
The data from the Labor Department revealed on Thursday the number of applications for unemployment benefits fell more than expected last week, pointing to sustained labor market strength. According to the report, the initial claims for unemployment benefits decreased 8,000 to 207,000 for the week ended September 29. Economists had expected 213,000 new claims last week. Claims for the prior week were revised upwardly to 215,000 from the initial estimate of 214,000. Meanwhile, the four-week moving average of claims edged up by 500 to 207,000 last week.
The U.S. Commerce Department reported on Thursday that the value of new factory orders increased 2.3 percent m-o-m in August, following a revised 0.5 percent m-o-m drop in July (originally a 0.8 percent m-o-m decline). That was the biggest gain in industrial orders since September 2017. Economists had forecast a 2.1 percent m-o-m advance. According to the report, orders for durable goods climbed by 4.4 percent m-o-m in August, driven by a rebound in orders for transportation equipment (+13.1 percent m-o-m, the largest monthly gain for the reading since June 2017). Meanwhile, orders for non-durable goods increased by 0.2 percent m-o-m. Total factory orders excluding transportation, a volatile part of the overall reading, inched up 0.1 percent m-o-m in September (the same pace as in August), while orders for nondefense capital goods excluding aircraft, a measure of business spending plans, fell 0.9 percent m-o-m (compared to a 1.5 percent m-o-m gain in July). The report also showed that shipments of core capital goods decreased 0.2 percent m-o-m in August, following a gain of 1.2 percent m-o-m in July. In y-o-y terms, factory orders grew 8.6 percent in August.
The Ivey Business School Purchasing Managers Index (PMI), measuring Canada’s economic activity, dropped to 50.4 in September from an unrevised 61.9 in August. That was the lowest reading since May 2016. Economists had expected the gauge to hit 62.3. A figure above 50 shows an increase while below 50 shows a decrease. Within sub-indexes, the employment measure decreased to 51.6 last month from 59.6 in August, while the prices index fell to 68.8 from 71.5 in the prior month and the inventories indicator decreased to 51.8 from 53.0. Meanwhile, the deliveries gauge rose to 47.5 in September from 45.3 in the previous month.
The Ministry of Internal Affairs and Communications announced on Thursday that the Japanese household spending increased 2.8 percent y-o-y in August, following a 0.1 percent y-o-y drop in July. Economists had expected household spending to decrease 0.1 percent y-o-y in August. Individually, spending increased for education (+25.0 percent y-o-y), transportation and communication (+15.1 percent y-o-y), medical care (+7.1 percent y-o-y), housing (+6.4 percent y-o-y), apparel (+2.6 percent y-o-y), and furniture & household utensils (+2.1 percent y-o-y), but fell for culture & recreation (-4.1 percent y-o-y), utilities (-1.8 percent y-o-y) and food (-1.5 percent y-o-y).
The Australian Bureau of Statistics (ABS) reported on Friday that Australia’s retail sales rose 0.3 percent m-o-m in August, following a flat m-o-m performance in July. Economists had forecast retail sales would increase 0.2 percent m-o-m in August. According to the ABS, there were rises in five of the six industries, with cafes, restaurants and takeaway food services (+0.7 percent m-o-m) leading the advances. Clothing, footwear and personal accessory retailing (+0.8 percent m-o-m), other retailing (+0.4 percent m-o-m), department stores (+0.9 percent m-o-m) and household goods retailing (+0.2 percent m-o-m) also recorded gains. Meanwhile, food retailing was unchanged.
III. Market Situation
The currency pair EUR/USD fell slightly, as investors corrected positions ahead of the release of the key data on the U.S. labor market for September. The August employment situation report revealed a continued growth in non-farm employment (employers added 201,000 new jobs), and experts expect another solid increase in September. The demand for workers remains exceptionally strong, while the number of applications for unemployment benefits stays at the lowest level since the late 1960s when the workforce was much smaller than it is today. It is expected that the U.S. nonfarm payrolls increased by 185,000 in September, following a 201,000 gain in the prior month, while the unemployment rate fell to 3.8 percent from 3.9 percent in August. Resistance level - $1.1594 (high of October 3). Support level - $1.1393 (low of August 20).
The currency pair GBP/USD demonstrated a slight decline, due to a partial profit-taking after the previous day’s rally in response to the Brexit-related news. Reuters reported yesterday that “a European Union source” told it new British proposals for avoiding extensive border checks in Ireland after Brexit were “a step in the right direction” and “make finding a compromise possible”. In addition, the media said that the UK could join a customs union with the EU. Ireland and the EU reportedly welcomed the proposal. With an almost empty economic calendar ahead, traders will focus on the dynamics of the U.S. currency and the general market sentiment toward risky assets. Resistance level - $1.3115 (high of October 1). Support level - $1.2896 (low of September 10).
The currency pair AUD/USD fell slightly, refreshing its lowest level since mid-February 2016, due to a new wave of strengthening of the U.S. currency. At the same time, the upbeat data on the Australian retail sales provided some support to the Australian dollar. The Australian Bureau of Statistics (ABS) reported that Australia’s retail sales rose 0.3 percent m-o-m in August, following a flat m-o-m performance in July. Economists had forecast retail sales would increase 0.2 percent m-o-m in August. According to the ABS, there were rises in five of the six industries. Resistance level - AUD0.7240 (high of September 28). Support level - AUD0.7000 (psychological level).
The currency pair USD/JPY consolidated near the opening level, as investors took a breather after the previous day’s drop in the pair and remained cautious ahead of the release of the U.S. labor market data as well. Meanwhile, traders ignored statistics on household spending in Japan. The Ministry of Internal Affairs and Communications announced that the Japanese household spending increased 2.8 percent y-o-y in August, following a 0.1 percent y-o-y drop in July. Economists had expected household spending to decrease 0.1 percent y-o-y in August. Resistance level - Y114.73 (high of November 6, 2017). Support level - Y113.31 (low of September 28).
U.S. stock indexes closed sharply lower on Thursday, as the U.S. Treasury yields climbed to multi-year highs, curbing the appetite for equities globally. Focus also was on the weekly data on initial jobless claims and a report on factory orders for August. The data from the Labor Department revealed the number of applications for unemployment benefits fell more than expected last week, pointing to sustained labor market strength. According to the report, the initial claims for unemployment benefits decreased 8,000 to 207,000 for the week ended September 29. Economists had expected 213,000 new claims last week. Meanwhile, the U.S. Commerce Department reported that the value of new factory orders increased 2.3 percent m-o-m in August, following a revised 0.5 percent m-o-m drop in July (originally a 0.8 percent m-o-m decline). That was the biggest gain in industrial orders since September 2017, driven by a rebound in orders for transportation equipment (+13.1 percent m-o-m). Economists had forecast a 2.1 percent m-o-m advance.
Asian stock indexes closed mostly lower on Friday, following steep losses on Wall Street overnight. The region’s technology companies were hit hard on Bloomberg BusinessWeek’s report that data center equipment run by Amazon Web Services and Apple may have been subject to surveillance from the Chinese government. China's markets were closed for the Golden Week holidays.
European stock indexes are expected to trade lower in the morning trading session.
Yields of US 10-year notes hold at 3.20% (+1 basis points)
Yields of German 10-year bonds hold at 0.53% (0 basis points)
Yields of UK 10-year gilts hold at 1.53% (0 basis points)
Light Sweet Crude Oil (WTI) futures traded higher. Crude oil for delivery in November settled at $74.91 (+0.78%). The crude oil prices rose amid concerns that U.S. sanctions on Iran, expected in November, could cause oil supply shortages. In addition, market participants were preparing for the release of weekly data on the U.S. oil rig count from Baker Hughes, scheduled for 17:00 GMT.
Gold traded at $1,198.80 (-0.08%). Gold prices edged down, as the U.S. Treasury yields reached multi-year highs and the U.S. currency firmed. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, rose 0.10 percent to 95.85. Since gold prices are tied to the dollar, a stronger dollar makes the precious metal more expensive for holders of foreign currencies.
IV. The most important scheduled events (time GMT 0)
Consumer Price Index
Halifax house price index
Private Nonfarm Payrolls
Labor Force Participation Rate
Average hourly earnings
FOMC Member Bostic Speaks
Baker Hughes Oil Rig Count
|remaining time till the new event being published|
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