Noor Trends News, Technical Analysis, Educational Tools and Recommendations
Most financial market entered Q4 with a volatile earthquake, largely due to the heightened uncertainty surrounding four key factors: the US labour market, East Coast port strikes, Middle Eastern tensions, and the impending US presidential election. However, the previous trading week brought a glimmer of relief, as the US nonfarm jobs report delivered a pleasant surprise, exceeding expectations, and the East Coast port strike reached a resolution.
Despite the lingering geopolitical and political clouds, the economic fundamentals remain solid. The Federal Reserve is poised to gradually lower interest rates through 2025, inflation is steadily moderating, and economic growth, though decelerating, remains positive.
NFP
The September US nonfarm jobs report revealed a substantial increase in job additions (254,000 versus forecast of 140,000 to 150,000) and a decline in the unemployment rate (from 4.2% to 4.1%). This month’s data marked a welcome shift in market sentiment, as the labour market is gradually returning to normalcy after a period of exceptional strength post-pandemic. The increased supply of labor, fueled by new entrants and returning workers, is balancing the marginally reduced demand for labor as job openings have declined throughout the year.
US Dollar Index
The US Dollar Index (DXY) experienced a fifth consecutive bullish day, driven by better-than-expected US Nonfarm Payrolls figures. The drop in the US Unemployment Rate and positive job gains have slowed market expectations for a repeat double-cut from the Federal Reserve in November. The CME’s FedWatch Tool indicates a 95% chance that the Fed will trim rates by 25 bps on November 7, with the last 5% betting on no movement on the Fed funds rate. The Dollar Index has been strong, breaking through important levels and going above 102.00.
One of the most significant implications of this robust labour report is its potential influence on Federal Reserve rate cuts. Following the report’s release, markets reacted swiftly, driving Treasury bond yields sharply higher and anticipating rate cuts of 0.25% instead of 0.5% for either November or December. Economists believe a more measured pace of rate cuts is a prudent approach for the Fed, especially after the substantial 0.5% rate cut in September. Overall, the Fed is likely gradually reducing interest rates to the 3.0% – 3.5% range by next year, which should positively impact both consumer and corporate spending.
Gold
Gold price retraces after a stronger-than-expected US jobs report hinted that the labor market remains solid and that the Federal Reserve (Fed) will likely ease policy in 25-basis-point (bps) chunks. At the time of writing, the XAU/USD traded at $2,643, down 0.40%.
Key Commodities
OPEC+ has been reducing production in recent years to support oil prices due to weak global demand, leaving the group with millions of barrels in spare capacity. Currently, OPEC+ production cuts amount to 5.86 million barrels per day (bpd). Analysts estimate that Saudi Arabia can increase output by 3.0 million bpd, while the United Arab Emirates (UAE) can boost production by 1.4 million bpd. Libya’s eastern-based government and the Tripoli-based National Oil Corporation announced the reopening of all oilfields and export terminals on Thursday, following the resolution of a leadership dispute at the central bank.
Gold prices were back in positive territory after a steep selloff after the US NFP data, and traders are scratching their heads as to what has happened here. The data released today has made speculators shred their bets on another jumbo rate cut, which impacted the price of the shinning metal when the data came out. However, the fact that the price is back in positive territory has caused traders to be concerned about the price action.
US Stocks
US stocks climb on upbeat sentiment after labour data, with the Dow Jones Industrial Average (DJIA) rallying after US Nonfarm Payrolls (NFP) jobs figures blew past expectations. The US Unemployment Rate dropped back to 4.1% from the previous 4.2%, further reinforcing a healthier-than-expected landscape in the US labor market. In addition, several months’ worth of NFP releases saw healthy upside revisions. Annual wage growth also firmed up in September, rising 4.0% YoY from the previous 3.9%.
According to the CME’s FedWatch Tool, rate trader expectations for the Fed’s November rate call plummeted post-NFP; rate futures speculators now see a 95% chance that the Fed will trim rates by a modest 25 bps on November 7, with the last 5% betting on no movement at all on the Fed funds rate.
Geopolitical Tensions
Geopolitical tensions escalated in the Middle East early this week as Israel faced an Iranian missile strike and contemplated retaliation. The immediate market response to this escalation was a rise in oil and commodity prices, along with a surge in safe-haven assets like gold and Treasury bonds, and a sharp increase in the VIX volatility index.
However, the demand for safe-haven assets has largely reversed, with Treasury bonds, gold, and the VIX index retreating. Oil prices remain elevated, as the most significant market impact from Middle East escalation could arise from disruptions in oil and energy supply.
US presidential election,: One month to go
The US presidential election continues to be a focal point, with less than five weeks until Election Day. Historically, market volatility tends to increase in the weeks leading up to Election Day. However, in the weeks following Election Day, the stock market tends to recover, regardless of the winning party.
Most observers remain confident in the underlying fundamentals of the bull market expansion: the Federal Reserve’s path toward lower interest rates, the gradual moderation of inflation, and the US economy’s trajectory toward a “soft landing” (no recession). Additionally, earnings growth is on track for double-digit figures this year and potentially next year.
