The panic narrative is returning to the stock markets. The focus today is on a non-farm report

The US 10year bond yields rose nearly 10 basis points to 3.85% after Minneapolis Fed President Neel Kashkari said yesterday that the central bank is “very far” from suspending its tightening campaign. Kashkari’s comments followed a series of hawkish remarks from other officials. Federal Reserve Bank of Chicago President Charles Evans said Thursday that the US Central Bank’s discount rate is likely to reach 4.54.75% by the spring of 2023 as the Fed increases the cost of borrowing to reduce too much inflation. A day earlier, San Francisco Federal Reserve President Mary Daly said that investors are wrong to anticipate monetary policy easing in 2023. Such hawkish rhetoric brought negativity back to the financial markets, which triggered some selloff in stocks.

At the close of the stock market yesterday, the Dow Jones Index (US30) decreased by 1.15%, and the S&P 500 Index (US500) fell by 1.30%. Tech Index NASDAQ (US100) closed the day down by 0.35%. At the Fed meeting in November, money markets are pricing in a more than 85% chance of a fourth straight 75 basis point rate hike.

Today, the main focus for investors will be on the US labor market data. If the report turns negative, it could trigger a drop in the dollar index and a rise in stock indices on expectations that the US Federal Reserve will be less aggressive in tightening monetary policy further. But if the nonfarm payrolls report is positive and shows the strength of the labor market, the opposite reaction could follow a selloff in the stock market plus an increase in the dollar index and treasury yields. Weekly labor market data showed that the number of Americans filing new jobless claims rose more than expected last week, but the labor market remains strong even as demand declines amid higher interest rates.

Stock markets in Europe were mostly down yesterday. German DAX (DE30) decreased by 0.37%, French CAC 40 (FR40) fell by 0.82%, Spanish IBEX 35 (ES35) lost 0.92%, British FTSE 100 (UK100) closed down by 0.78%.

The report on the ECB’s September 78 monetary policy meeting released yesterday showed that an absolute majority approved a 75 basis point rate hike of the Governing Council. The report also indicated that in the medium term, a 50 basis point hike would be part of a sustainable path toward more neutral rate levels, and such a dynamic would be sufficient to alleviate inflationary pressures and not “drop” the economy deep into recession. But all inflation forecasts for 2023 and 2024 have been revised upward.

In August 2022, seasonally adjusted retail sales were down by 0.3% in the Eurozone. Retail sales also declined by 0.4% in July. This is negative data, which indirectly points to high inflationary pressures.

Oil prices rose about 1% on Thursday, holding at a threeweek high after OPEC+ agreed to cut global supply by 2 million BPD, the biggest cut since 2020. Saudi Arabia’s energy minister said the real supply cut would be 1 million to 1.1 million BPD. Experts believe that such a move by OPEC+ will not only boost oil prices but also cause a new round of unwinding inflation, which central banks around the world are actively fighting.

Asian markets traded flat yesterday. Japan’s Nikkei 225 (JP225) gained 0.70%, Hong Kong’s Hang Seng (HK50) decreased by 0.42%, and Australia’s S&P/ASX 200 (AU200) ended the day up by 0.03%.

A report released Thursday by the Bank of Japan (BOJ) indicates that most regional economies in Japan are seeing a moderate rebound, with some firms considering wage increases, stressing the hope that household incomes will rise enough to offset rising costs of living.

OPEC+ will no longer meet monthly. Meetings will now be held every two months.

S&P 500 (F) (US500) 3,744.40 −38.88 (−0.20%)

Dow Jones (US30) 29,926.47 −347.40 (−1.15%)

DAX (DE40) 12,470.78  −46.40 (−1.21%)

FTSE 100 (UK100) 6,997.27 −55.35 (−0.78)

USD Index 112.22 +1.14 (+1.02%)

• US FOMC Member Waller Speaks (m/m) at 00:00 (GMT+3);
• US FOMC Member Mester Speaks (m/m) at 01:30 (GMT+3);
• German Industrial Production (m/m) at 09:00 (GMT+3);
• US Nonfarm Payrolls (m/m) at 15:30 (GMT+3);
• US Unemployment Rate (m/m) at 15:30 (GMT+3);
• Canada Unemployment Rate (m/m) at 15:30 (GMT+3);
• US FOMC Member Williams Speaks (m/m) at 17:00 (GMT+3).

by JustMarkets, 2022.10.07