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Global market sentiment mostly ended on an upbeat this past week, but a lot of the upside progress was given up the day before the weekend. On Wall Street, Nasdaq 100, S&P 500 and Dow Jones futures gained 0.54%, 1.36% and 1.86%, respectively. But, at one point, the tech-heavy Nasdaq was up almost 6 percent before evaporating the bulk of its progress.
The sharp reversal occurred on Friday in the wake of September’s US non-farm payrolls report. Not only did the country add more jobs than expected at 288k, but the unemployment rate sharply dropped to 3.5% from 3.7%. Granted, the labor force participation rate softened to 62.3% from 62.4% prior. All things considered, it pointed to a still-tight labor market.
This is not good news for the Federal Reserve, which is trying to bring down the highest inflation in 40 years. Early last week, the markets were starting to price out even 1 rate hike in 2023. By the end of Friday, it was back on the table. The central bank’s balance sheet also continued shrinking, touching its lowest since December 2021.
Diverging from stock markets, WTI crude oil prices surged 16.44% in the best week since Russia invaded Ukraine. OPEC+ signaled output cuts in the coming months to try and bolster prices that have been falling since May. Gold prices also ended higher for the week, but like stocks, most gains were trimmed heading into the weekend.
Given the labor market in the US, all eyes now turn to this week’s inflation report. Headline inflation is seen falling to 8.1% y/y in September from 8.3% prior. Unfortunately for the Fed, the core gauge is predicted to come in at 6.5%, up from 6.3%. The latter is a more pressing issue for the central bank as prices risk continuing to de-anchor from the long-run objective.
Another solid CPI report would likely continue bringing volatility into financial markets, pushing up the US Dollar. This would likely also push Japan to continue intervening in markets to contain USD/JPY. For the British Pound, the UK will release employment data. China also releases its CPI report. The earnings season starts with banks reporting. What else is in store for financial markets in the week ahead?
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