EU and US indices traded in the green yesterday, hoping that Senate Democrats and Republicans will agree to lift the debt ceiling until December.
Indeed, the vote took place overnight, with lawmakers passing the bill. The proposal will now go to the House, which will vote on it on Tuesday.
Today, the main event on the agenda may be the US employment data for September, where decent numbers may add even more credence to the case of a November tapering by the Fed.
US Senate Votes To Raise Debt Ceiling, US NFPS To Determine Fed's Next Move
The US dollar traded mixed against the other major currencies on Thursday and during the Asian session Friday. It gained against JPY, CHF, and slightly against EUR, while underperformed versus AUD, CAD, NZD, and GBP.
The weakening of the safe-haven yen and franc, as well as the strengthening of the risk-linked Aussie, Kiwi, and Loonie, suggest that markets may have traded in a risk-on manner yesterday and today in Asia.
Indeed, looking at the performance in the equity world, we see that EU and US shares were a sea of green, with the positive morale, although somewhat softer, rolling into the Asian session.
At the time of writing, the only index – among the ones we monitor – which is in slightly negative territory is South Korea's KOSPI 50.
European indices rose Thursday, after Senate's top Republican, Mitch McConnell, said his party would support an extension of the federal debt ceiling into December.
Sentiment remained during the US session as US Senate Majority Leader Chuck Schumer announced that Senate leaders have come to an agreement.
The official voting took place overnight, with Senate members voting 50-48 in favor of the bill. The proposal will now go to the House of Representatives before President Biden can sign it into law. The House will vote on Tuesday, Oct. 12.
Given that Democrats hold a majority in the House getting the bill through will be an easy task. They have avoided a catastrophic government shutdown for now. But, chances of that happening in December remain high.
After passing the current bill, a fresh standoff between Democrats and Republicans could weigh again on investors' morale. After all, other factors that resulted in the latest equity sell-off are well on the table.
Concerns over persistently high inflation and faster tightening by major central banks, worries over a Chinese economic slowdown due to regulatory changes, the likelihood of Evergrande's (OTC:EGRNY) default, and a recent power crunch are likely to be on investors' minds.
Today, we get the US employment report for September, which could determine whether the Fed will begin tapering its QE purchases next month.
Nonfarm payrolls are expected to rise to 500,000 from 235,000, while the unemployment rate could tick down to 5.1% from 5.2%. Average hourly earnings could fall to +0.4% MoM from +0.6%, but barring any deviations to the prior monthly prints, this will take the YoY rate up to +4.6% from +4.3%.
Overall, all this points to a more decent report than the one we got for August. This, along with Powell's recent remarks that inflation could remain elevated longer than estimated, may increase chances of a November tapering. This could also raise expectations of an interest rate hike.
According to the Fed funds futures, the first 25 bps rate hike is priced in for January 2023. Increasing tightening bets could translate into USD strength and another correction inequities. The opposite could be true if we get a disappointing set of numbers.
NASDAQ 100 – Technical Outlook
The NASDAQ 100 cash index traded higher yesterday and hit resistance at 15015, before rebounding lower. Despite the recovery since Wednesday, the index remains below the downside resistance line drawn from the high of Sept. 7. So, we would consider the rebound a corrective move.
The bears may push the action below the 14770, which was Tuesday's inside swing high. This may see scope for more significant declines, perhaps towards Wednesday's low of 14435, the break of which may extend the fall towards 14320, or even 14210, defined as a support by the inside swing high of June 18.
On the upside, we would like to see a break above 15245 before we start examining whether the bulls have the upper hand. This could also confirm the break above the downside line drawn from the high of Sept. 7 and could initially target 15410, marked by the high of Sept. 27.
If market participants don't stop there, we may see the climbing towards 15545, marked by the high of Sept. 17, or even towards the index's record peak of 15710, hit on Sept. 6.
USD/CAD – Technical Outlook
USD/CAD is one of the few currency pairs that don't reflect the strengthening US dollar. And this is because the Loonie receives a log of support from the surging oil prices. Therefore, as long as oil prices rally, USD/CAD may continue drifting south. For now, we maintain a negative view.
The pair may rebound if the NFPs come in strong, but the bears may jump back into the action near 1.2600 or the downside line taken from the high of Sept. 20.
We could then see another test near 1.2518, marked by the low of Sept. 7, the break of which could pave the way towards the 1.2475 level, marked by the low of Aug. 5. Another break below 1.2518 could extend the fall towards the low of July 30, at 1.2420.
We will consider a trend reversal signal if the price breaks above 1.2650. This could pave the way for a higher high. The bulls could climb towards 1.2740, marked by the high of Oct. 1, or the peak of Sept. 29, at 1.2775.
If the pair breaks through those levels, we may experience extensions towards 1.2845, near the high of Sept. 21.
Today's Events
Along with the US, Canada will also publish jobs data for September. The unemployment rate is expected to slide to 6.9% from 7.1%, while the net change in employment is forecast to show that the economy added 65,000 jobs after adding 90,000 in August.
The Bank of Canada (BoC) has kept its policy unchanged and maintained the guidance that the economic slack would be absorbed sometime in H2, 2022, hinting at interest rates hikes in that period.
Following the economic contraction in Q2, many expected the bank to announce a delay in its tapering plans. However, that was not the case. Governor Tiff Macklem hinted that tapering could begin soon.
Another round of decent employment numbers could add to the case of an October tapering, boosting the Loonie, which has enjoyed an easy journey north recently due to the rising oil prices.
As for the speakers, we have two on today's agenda: ECB President Christine Lagarde and ECB Executive Board member Fabio Panetta.