All eyes turn to this afternoon’s NFP (nonfarm payrolls) figures which are predicted to slightly decline to 265,000 and for the unemployment rate to remain at 3.7%.
Many analysts believe that next week will be a “make or break” for both the US Dollar and, even more so, the US stock market. USD may find support if the NFP figure, Unemployment Rate, and Average Hourly Earnings remain positive without major declines.
However, the Consumer Price Index (CPI) scheduled for next Thursday will most likely be a more influential event. Most economists believe that the CPI figure for September will remain in the positive zone.
It is predicted that the monthly inflation will be at 0.2%. A figure higher than 0.2% will be extremely negative for the US stock market but provide support for the US Dollar. Whereas, if the CPI is under 0.0%, it will bring the US inflation rate below 8% for the first time since February 2022.
So, if employment figures remain positive with inflation failing to decline, it may lead to a more restrictive Federal Reserve. In this scenario, investors may even consider a potential 100 basis point rate hike, but this entirely depends on the figures to be announced later today.
European Equities
European indices start the day in the red with DAX declining by 0.31%, the CAC 40 by 0.15%, and the Euro Stoxx 50 by 0.47%. European stocks started the week strong but are under pressure from 3 major factors. First, economic releases indicated a significant slowdown in most European states except France.
In addition, economists predict a further interest rate hike from the ECB and for the main refinancing rate to reach 2% by the end of the year unless the region sees a sharp decline in inflation. Lastly, investor sentiment and risk appetite decline as uncertainty overshadows the winter months due to the current European Energy Crisis.
With the latest spike in the price of oil, it is also expected that inflation is also likely to remain high over the next month. The price of oil has increased by over 10% this week alone. If the figure remains above $85 or continues to increase above $90 per barrel, we can expect much higher petroleum prices for consumers and businesses.
If prices remain high longer, this can significantly damage economic growth and activity.
US Dollar - Technical View
The US Dollar Index increased by 0.20%, bringing the index to 112.49 at the start of the European open. USD sees gains against the Euro and the Pound but is struggling to gain significant momentum against the Japanese Yen, potentially due to the recurring resistance level.
The US Unemployment Claims released yesterday increased from 190,000 to 219,000, the highest in 3 months. In addition, the market also focused on the latest comments from FOMC members - the President of the Fed Bank of San Francisco and the Chairman of the Atlanta Fed.
Both members advised the market that interest rates will likely continue to rise to between 4% to 4.5%. After reaching these recent highs, the regulator will take a “wait, re-evaluate and see” stance. However, it should be noted that both members advised that interest rates are not likely to decline in the first half of next year.