Financial Markets – Preview for Week Starting 9th October 2016

Major Events of Last Week

The USA published its early-awaited labor report for September last Friday which surprised the markets by disclosing a slowing rate of growth for the third consecutive month. This unexpected slump may now provide sufficient incentive for the US Federal Reserve to adopt a more cautious stance by refraining from hiking interest rates during 2016. Prominent analysts are already predicting that there is now a zero probability of a rate increase during November. The topmost US indices crept downwards last Friday exemplified by the Dow Jones Industrial Average falling by 10 points; the S&P500 inching lower by 5 points and the NASDAQ dropping by 11 points.

The US Department of Labor posted key data late last week revealing that American employers created 156,000 new jobs last month compared to August’s revised number of 167,000 and economists’ predictions of 175,000. The national unemployment rate surprisingly nudged upwards from 4.9% to 5.0% although this increase was primarily due to more US citizens rejoining the workforce. The Average Hourly Wage rose during September by 2.6% complying with market forecasts.

Janet Yellen, the Chairperson of the US Federal Reserve, advised recently that the US economy needs to constantly generate about 100,000 new jobs per month in order to counter population growth. She also added that she did not consider that the current average monthly job increase of about 180,000 was not sustainable over the long-term. As last Friday’s labor report will be the last one before the Fed’s monthly monetary policy meeting between 1^st and 2^nd November, experts have now concluded that there is absolutely no chance of a rate hike next month. This prediction is underpinned even further by the fact that the US presidential election will be held on the 8^th November. These analysts have also assessed that there is just a 50% of a hike in December.

However, the Fed is facing a complex situation since three committee members supported a rate hike in September by voting against the majority decision to keep interest rates steady. Analysts now expect that the disappointing labor report released last Friday should bolster the argument of the dovish Fed policymakers by underpinning their more cautious approach going forward.  One of the most disturbing features of the report is that it disclosed that the vital manufacturing sector shed nearly 13,000 jobs during last month by registering its third successive month of losses. Fed policy-making has now become a central theme of the present US prudential race. For instance, Donald Trump is asserting that the Fed is keeping interest rates low for political reasons.

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What to Expect This Week

No key global events or data releases are scheduled for Monday.

On Tuesday, the Eurozone will present a key Business Confidence Index for October. The ZEW survey is expected to remain steady by hovering about its 5.4 mark. Later, Australia will declare an important Consumer Confidence Index which should surpass its last showing of 0.3%.

The Eurozone will disclose its ‘Industrial Production’ figure for August on Wednesday which is forecasted to rebound back into growth from its prior dismal print of -1.1%. The pivotal event of the week will then occur during Wednesday afternoon, EST, when the Fed publishes the minutes from its last policy meeting. Investors will be keen to learn exactly how close the US Central Bank came to hiking rates during September. China will complete the session by revealing its Trade Balance for last month which should produce another positive result in the black.

On Thursday, the Eurozone will commence an Extraordinary Economic Summit aimed at addressing the region’s faltering economic recovery and the worrisome Brexit vote. Later, the USA will issue its ‘Jobless Claims’ for the previous week, ending 9th October, which should once again verify that the number of Americans filing first claims for unemployment benefits continues to remain within the longstanding range of ‘240k to 290k’. China will finish the day by posting vital inflationary data for last month. Consumer Price Index should come in about its 1.5% handle.

The USA will release its Retail Sales figure for September on Friday. Pundits are currently favoring a rebound from August’s disappointing -0.3% to +0.6% this time around. The USA will then deliver the initial reading of a major Consumer Sentiment Index for September which should increase to 92.0 from its previous 91.2. Janet Yellen, the Fed Chairperson, is also scheduled to present a speech during the day during which she could place Friday’s weak labor report into context.