Yet another surprise we don’t need…

Thoughts of the Day

Oil prices have surged 4%, and US stock futures dropped 1% due to an unexpected attack on Israel. Uncertainty has risen, and the major central banks are likely to be more cautious going forward. During times of higher volatility and uncertainty, it is prudent to size your trades appropriately.

This is an abridged version of our CIO’s daily writeup for the day, to view the full version, please login or subscribe to a membership plan.

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Week Ahead

Monday: Bank Holiday in Japan (Health-Sports Day), the US (Columbus Day – Bond markets closed while US stock markets remain open) and Canada (Thanksgiving Day)

The IMF and World Bank will meet this week from 9 Oct to 15 Oct.

Tuesday:

Wednesday: The US Producer Price Index for September is expected to show that prices rose +1.6% Year-on-Year as it did in August. The core index is expected to show a +2.3% gain YoY. (vs 2.2% prev)

The Federal Reserve meeting minutes for the September meeting will be released.

Thursday: The UK GDP is expected to show a YoY growth of +0.5% in August (vs 0% in July).

The ECB monetary policy meeting accounts for the September meeting will be released.

The US Consumer Price Index for September is expected to show that prices rose +3.6% Year-on-Year, slightly below the +3.7% print in August. The core index is expected to show a +4.1% gain YoY (vs +4.3% prev).

Friday: The Chinese Consumer Price Index for September is expected to show that prices rose +0.2% YoY, slightly higher than the +0.1% print in August. The Producer Price Index for September is expected to show that prices fell -2.4% YoY vs -3.0% in August.

The preliminary print for the US University of Michigan Consumer Sentiment is expected to be 67.4, lower than the previous print of 68.1. UoM Inflation expectations for the year ahead is expected to come in at 3.3% while the 5-Year inflation expectations is expected to come in at 2.9%.

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What Happened Yesterday

Market Movements as of New York Close 6 Oct 23 (8 Oct for Crypto)
  • The US Nonfarm Payrolls (NFP) showed that 336k jobs were added to the economy in September (+170k expected), up from the +227k in August (revised from +187k). The US unemployment rate remained at 3.8% (vs +3.7% expected) while the labour force participation rate remained at 62.8%. The increase in payrolls is likely due to the workforce taking on more than one job in order to make ends meet as the participation rate and unemployment rate remains unchanged ie number of people with jobs remained the same while more jobs were being taken up means that the same number people are working more jobs.
  • The Canadian Employment Change showed +63.8k jobs being added to the economy in September (vs 20k expected), up from +39.9k in August. The unemployment rate remained at 5.5% (vs +5.6% expected) while the participation rate rose slightly to 65.6% from 65.5%.
  • The US Treasury Yield curve inversion narrowed slightly to 0.30% as the US 2-year bond yield rose +0.05% to 5.08% while the 10-year bond yield increased +0.06% to 4.78%.
  • The US stock futures were relatively quiet during the Asian and London trading sessions on Friday with the S&P 500 futures merely up +0.16% before the release of the US NFP data.The stronger than expected NFP result immediately sent the S&P 500 futures down by -1.02% but the market bounced off the lows soon after.
  • The US stock market opened lower from Thursday as a result of the stronger than expected NFP data. However, it started to steadily climb through the session as markets digested the jobs report further and decided that it is not as rosy as it looks for the reasons explained above. Consequently, the S&P 500 closed +1.18% lower (high: +1.55%, low: -0.91%), the Dow rose +0.87% (high: +1.32%, low: -0.82%) while the Nasdaq gained +1.70% (high: +2.03%, low: -1.00%).
  • The crypto market traded higher over the weekend with the improved risk sentiment on Friday. Bitcoin is up +1.9% while Ether is up +1.3%.
This is a partial analysis of what happened yesterday, for a more detailed analysis, subscribe to a membership plan.

Headlines & Market Impact

Even as job creation surges, Americans still think the economy stinks. Here’s why

Notable Snippet: The U.S. economy has added more than 2.3 million jobs this year, the unemployment rate is still below 4% and there are nearly 10 million open positions out there for anyone still looking for work.

So if a healthy jobs picture is the cornerstone of a healthy economy, then why do so many people still think things are terrible?

It’s because the rent — along with the food, the gas and the appliances — is still too damn high. In a word: Inflation, which while heading lower in terms of its annual pace, is still far more than most people can stand and is making everything else look, if not terrible, at least less wonderful.

After all, more than a quarter of the job creation for September came from lower-wage occupations in the leisure and hospitality industry.

Real career advancement opportunities are tougher to get these days, and Census Bureau surveys have shown growing despair among teens and the Gen Z cohort, who worry about their future on an economic level.

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Oil prices jump 4% after Hamas attack on Israel

Notable Snippet: Oil prices jumped 4% as the Israel-Hamas conflict extended into its third day following a surprise attack on Israel by Palestinian militants Hamas.

Global benchmark Brent traded 4.07% higher at $88.02 a barrel Monday, while the U.S. West Texas Intermediate futures rose 4.25% to $86.31 per barrel.

At dawn on Saturday during a major Jewish holiday, Palestinian militant group Hamas launched a multi-pronged infiltration into Israel — by land, sea and air using paragliders. The attack came hours after thousands of rockets were sent from Gaza into Israel.

And oil-rich Iran looms large as the market’s immediate concern.

“If western countries officially link Iranian intelligence to the Hamas attack, then Iran’s oil supply and exports face imminent downside risks,” Dhar said.

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Japan likely won’t intervene to reverse yen downtrend, ex-top currency diplomat says

Notable Snippet: Japan likely won’t seek to reverse the yen’s downtrend with exchange-rate intervention as recent falls reflect economic fundamentals, former top currency diplomat Naoyuki Shinohara told Reuters.

There is no set rule or shared agreement among G7 advanced nations on what kind of currency moves are defined as “excess volatility” that justify intervention, Shinohara said.

“But usually, when you talk about excess volatility you have in mind a timeframe of several days or weeks,” rather than several months, he said in an interview on Friday.

The remarks contrast with those of incumbent top currency diplomat Masato Kanda, who said on Wednesday that steady yen falls over a protracted period could also warrant intervention.

“Japanese authorities are well aware that they can’t reverse the market’s tide when the yen’s decline is driven by economic fundamentals,” said Shinohara, who retains close ties with incumbent policymakers.

“When you have steady yen falls over a protracted period, that’s usually a trend driven by fundamentals,” he said on the yen’s recent declines.

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Best,
Phan Vee Leung
CIO & Founder, TrackRecord