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I. Market focus
A new week in the financial markets of the world began with a decline in the Chinese stock market, which opened after a week-long break. During Monday's session, the main Chinese stock gauge the Shanghai Composite lost more than 3 percent, despite the fact that the People’s Bank of China (PBoC) cut reserve requirements for banks at the weekend, while the country's finance minister promised more fiscal stimulus. In addition, the PBoC lowered the price of the yuan today. The Chinese stock market caught up with global stock markets, which suffered declines in the last few sessions last week.
The dollar began to recover in the morning after Friday’s drop, which was attributable to the weaker-than-expected data on the U.S. labor market. Despite Friday's decline, the U.S. currency’s upward trend remains in tact. After a slight correction/consolidation, the dollar is likely to continue to update its highs amid expectations of further tightening of the Fed's monetary policy.
Today’s session will not be busy with scheduled events and publications of important macroeconomic data. The most significant reports on Monday will be data on industrial production in Germany (06:00 GMT) and investor confidence in the Eurozone (08:30 GMT). Canada’s financial markets will be shut today for a public holiday. In the U.S., the bond markets will be closed, but the stock markets will open in observance of Columbus Day. This may take its toll on the dynamics of today’s trading.
II. The market highlights are:
Statistics Canada reported on Friday that the number of employed people rose by 63,300 m-o-m (+0.3 percent m-o-m) in September, beating economists’ forecast for a 25,000 increase and after an unrevised drop of 51,600 in the previous month. That was the biggest increase in employment this year. Meanwhile, Canada's unemployment rate declined by 0.1 percentage points m-o-m to 5.9 percent last month. That was in line with economists’ forecast. According to the report, full-time employment decreased by 16,900 (-0.1 percent m-o-m) in September, while part-time jobs surged by 80,200 (+2.3 percent m-o-m). In September, the number of private sector employees climbed 95,800 (+0.8 percent m-o-m), while the number of public sector employees edged up by 2.300 (+0.1 percent m-o-m). At the same time, the number of self-employed dropped by 35,000 m-o-m (-1.2 percent m-o-m) last month. Sector-wise, there were more people working in construction (+ percent m-o-m), finance, insurance, real estate, rental and leasing (+ percent m-o-m), public administration (+ percent m-o-m) and agriculture (+ percent m-o-m). At the same time, employment decreased in information, culture and recreation (-2.2 percent m-o-m), and business, building and other support services (-1.3 percent m-o-m).
Another report from Statistics Canada showed that Canada’s merchandise trade balance came in at a surplus of a CAD0.53 billion in August, compared to a revised deficit of CAD0.19 bln in July (originally a gap of CAD0.11 billion). Economists had expected a deficit of CAD0.50 billion. According to the report, the country’s exports fell 1.1 percent m-o-m to CAD50.55 billion in August, mainly due to declines in exports of motor vehicles and parts (-6.2 percent m-o-m) as well as metal and non-metallic mineral products (-6.2 percent m-o-m), which, however, were partially offset by higher exports of metal ores and non-metallic minerals (+20.1 percent m-o-m). Meanwhile, imports decreased 2.5 percent m-o-m to CAD50.02 billion in August, with lower imports of aircraft and other transportation equipment and parts (-27.8 percent m-o-m), consumer goods (-3.7 percent m-o-m), and motor vehicles and parts (-3.8 percent m-o-m) contributing the most to the drop.
The Department of Commerce said on Friday the U.S. the goods and services trade deficit widened by 6.4 percent m-o-m (or $3.20 billion) to $53.24 billion in August from a revised $50.04 billion in July (originally a gap of $50.08 billion). That was the highest trade deficit since February. Economists had expected a deficit of $53.50 billion. According to the report, the August increase in the goods and services deficit reflected a gain in the goods deficit of 4.9 percent m-o-m (or $3.59 billion) to $76.75 billion and an advance in the services surplus of 1.7 percent m-o-m (or $0.39 billion) to $23.51 billion. August exports were $209.43 billion, down 0.8 percent m-o-m, while August imports stood at $262.67 billion, up 0.6 percent m-o-m. Year-to-date, the goods and services deficit surged 8.6 percent y-o-y (or $31.03 billion). Exports rose 8.4 percent y-o-y (or $129.56 billion), while imports boosted 8.4 percent y-o-y (or $160.59 billion).
The Labor Department announced on Friday that nonfarm payrolls increased by 134,000 in September after an upwardly revised 270,000 gain in the prior month (originally an increase of 201,000). According to the report, employment rose in professional and business services (+54,000 jobs), in health care (+29,800), and in transportation and warehousing (+23,800). At the same time, the unemployment rate fell to 3.7 percent in September from 3.9 percent in August, which was the lowest rate since December of 1969. Economists had forecast 185,000 new jobs and the jobless rate to drop to 3.8 percent. The labor force participation rate remained unchanged at 62.7 percent, while hourly earnings for private-sector workers rose by 0.3 percent m-o-m (8 cents) to $27.24, the same pace as in August. Economists had forecast labor force participation rate to stay at 62.7 percent and a 0.3 percent advance in the average hourly earnings. The average workweek was unchanged m-o-m at 34.5 hours in September, in-line with economists’ forecast.
The weekly report from Baker Hughes, which was released on Friday, showed that the number of active U.S. rigs drilling for oil fell by two to 861 during the week ended October 5. In the prior week, the oil-rig count dropped by three. Meanwhile, the total active U.S. rig count, which includes oil and natural-gas rigs, also decreased by two to 1,052, as the gas rig count was unchanged at 189 last week, and the miscellaneous rig count remained at 2. The U.S. rig count is up 116 rigs from this time last year when it stood at 936.
Markit/Caixin’s survey revealed on Monday that the Chinese services sector continued to expand in September at a faster pace than in August. The Caixin/Markit services purchasing managers' index (PMI) came in at 53.1 last month on a seasonally adjusted basis, up from the previous month's reading of 51.5. That marked the strongest increase in activity at China’s services companies in three months. Economists’ had predicted the reading to edge down to 51.4. The 50 mark divides contraction and expansion. According to the survey, the new orders recorded the quickest rise since June, while the employment showed a slight decline. On the price front, the rate of input price inflation accelerated to the second-steepest since May 2012 (behind January 2018), underpinned by higher prices for fuel, raw materials and greater staffing costs. Despite the faster increase in input costs, services companies signaled broadly no change to their output charges, with some firms mentioning greater efforts to remain competitive. Caixin China Composite PMI, which covers both manufacturing and services, inched up to 52.1 in September from 52.0 in August, signaling that the rate of activity growth remained lackluster compared to that seen earlier in 2018.
III. Market Situation
The currency pair EUR/USD traded slightly lower, due to the broad strengthening of the U.S. currency. Investors continued to digest Friday’s report on the U.S. labor market, which confirmed the stability of the American economy. Many believe that this may raise concerns about inflation and monetary policy tightening. Investors are worried that strong economic growth may force the Fed to hike its interest rates at a faster pace than expected. Today, market participants will continue to monitor the dynamics of the U.S. dollar, as well as pay attention to the publication of the Sentix survey of investor confidence in the Eurozone. Resistance level - $1.1594 (high of October 3). Support level - $1.1393 (low of August 20).
The currency pair GBP/USD pair fell slightly, retreating from a 1-1/2-week high, due to partial profit-taking after Friday’s rally, as well as the broad strengthening of the U.S. dollar. On Friday, the pound received support from the reports by Bloomberg that the EU is set to offer the UK a “super-charged” free trade deal. According to two EU diplomats, the EU’s vision for future ties with Britain will contain “about 30-40 percent” of May’s pitch for a wide-ranging trade and security deal. With an 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 - $1.3217 (high of September 26). Support level - $1.2921 (low of October 4).
The currency pair AUD/USD consolidated near the opening level, due to the lack of new drivers. The data on China, Australia's main trading partner, had a slight impact on the pair. The report showed that the Chinese services sector continued to expand in September at a faster pace than in August. The Caixin/Markit services purchasing managers' index (PMI) came in at 53.1 last month on a seasonally adjusted basis, up from the previous month's reading of 51.5. That marked the strongest increase in activity at China’s services companies in three months. Economists’ had predicted the reading to edge down to 51.4. The 50 mark divides contraction and expansion. According to the survey, the new orders recorded the quickest rise since June, while the employment showed a slight decline. On the price front, the rate of input price inflation accelerated to the second-steepest since May 2012 (behind January 2018), underpinned by higher prices for fuel, raw materials and greater staffing costs. Despite the faster increase in input costs, services companies signaled broadly no change to their output charges, with some firms mentioning greater efforts to remain competitive. Resistance level - AUD0.7240 (high of September 28). Support level - AUD0.7000 (psychological level).
The currency pair USD/JPY traded marginally higher, as the U.S. dollar demonstrated the broad strengthening, while the risk aversion could not provide traditional support to the yen. The focus of investors' attention is gradually shifting to the Japanese data on the current account (CA) balance, set to be released at 23:50 GMT. It is expected that the CA surplus decreased to 1.897 trillion yen in August from 2.010 trillion yen in July. 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 Friday, as the U.S. Treasury yields continued to rise following the release of a solid jobs report. The Labor Department reported that nonfarm payrolls increased by 134,000 in September after an upwardly revised 270,000 gain in the prior month (originally an increase of 201,000). At the same time, the unemployment rate fell to 3.7 percent in September from 3.9 percent in August, which was the lowest rate since December of 1969. Economists had forecast 185,000 new jobs and the jobless rate to drop to 3.8 percent. The labor force participation rate remained unchanged at 62.7 percent, while hourly earnings for private-sector workers rose by 0.3 percent m-o-m (8 cents) to $27.24, the same pace as in August. Economists had expected labor force participation rate to stay at 62.7 percent and a 0.3 percent advance in the average hourly earnings.
Asian stock indexes closed steeply lower on Monday, following Wall Street's weak performance on Friday. The Chinese equity benchmark, the Shanghai composite, tumbled more than 3 percent as traders returned from a week-long holiday that encompassed the rally in the U.S. Treasuries. Japan stock market was shut for a holiday.
European stock indexes are expected to trade lower in the morning trading session.
Yields of US 10-year notes hold at 3.23% (+4 basis points)
Yields of German 10-year bonds hold at 0.58% (0 basis points)
Yields of UK 10-year gilts hold at 1.59% (0 basis points)
Light Sweet Crude Oil (WTI) futures traded lower. Crude oil for delivery in November settled at $73.89 (-0.61%). The crude oil prices declined on the back of the strengthening of the U.S. dollar and reports that the U.S. may grant waivers to sanctions against Iran’s oil exports next month. According to a U.S. government official, Washington could consider exemptions for nations that have already shown efforts to reduce their imports of Iranian oil.
Gold traded at $1,196.70 (-0.61%). Gold prices fell moderately as the U.S. Treasury yields continued to rise and the U.S. currency firmed. The index, measuring the value of the U.S. dollar relative to a basket of six major currencies, increased 0.13 percent to 95.75. 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)
Sentix Investor Confidence
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