04/11/2024 - 08:58 UTCModerate gains were observed in the dollar against most major currencies on Friday, with the dollar index up by 0.4%, hovering right below its three-month high. The Non-Farm Payroll report released on Friday revealed a contraction in U.S. employment during October, attributed to the effects of labor strikes and adverse weather conditions. This development may provide the Federal Reserve with greater flexibility to implement more substantial interest rate reductions in the future.
According to the CME Fedwatch tool, expectations for a cut of 25 basis points in the upcoming FOMC meeting later this week currently stand at 99.8% while odds for rates to remain unchanged are at 0.2%.
In the meantime, the new week begins on a cautious note, as investors focus now turns to the US presidential election where a tight rate is expected between Republican Donald Trump and Democrat Kamala Harris. Early voting is already well underway in an election race that could have far-reaching consequences for fiscal policy and global trade.
Wall Street had a subdued trading session on Friday, as anticipation of a tight presidential election and a Federal Reserve meeting later in the week kept investors averse towards risk-driven assets. The US 30, the US 500 and the US tech 100 experienced a partial rebound, driven by expectations that the Federal Reserve may adopt a more accommodative monetary policy stance in response to the recent decline in employment figures.
While the majority of companies reported better-than-expected earnings for the September quarter, a weak outlook from key technology firms such as Microsoft and Apple, coupled with anticipated higher capital expenditures, added downward pressure on the technology sector. The earnings season will continue this week with results from Palantir Technologies and Constellation Energy due on Monday, and Ferrari and Super Micro Computer a day later.
Aside from the U.S. presidential elections and the Fed interest rate decision, other key events due later this week include the ISM services PMI and UoM consumer sentiment data.
The EUR/USD pair erased earlier gains on Friday after encountering selling pressure near the critical resistance level of 1.0900, following the release of the US Nonfarm Payrolls (NFP) data for October.
The latest NFP report revealed that the US economy added just 12,000 new jobs, far below the consensus estimate of 113,000. Average Hourly Earnings, a key gauge of wage inflation, rose by 4.0% year-over-year in October, in line with expectations.
Separately, the ISM Manufacturing Purchasing Managers’ Index (PMI) for October showed a faster-than-expected contraction in factory activity, falling to 46.5 from September’s 47.2, against an anticipated improvement to 47.6.
Looking ahead, investors’ attention is turning to the Federal Reserve’s policy meeting on Thursday.
Gold slipped lower on Friday amid a turbulent trading session, following the release of October's US Nonfarm Payrolls (NFP) report.
Gold’s decline may have been influenced by mixed economic data from the US Institute for Supply Management (ISM) also.
Meanwhile, the inflation-sensitive ISM Manufacturing Prices Paid Index rose sharply to 54.8 in October from 48.3 in September, surpassing forecasts of 48.5.
Despite mixed signals from the ISM data, the weak job growth reported in the NFP raises concerns about the health of the US labor market, which may prompt the Federal Reserve (Fed) to consider more substantial rate cuts.
Oil prices ticked higher on Friday amid reports of escalating tensions, with Iran reportedly preparing a retaliatory strike on Israel from Iraq. However, record U.S. crude production limited the upside in prices.
Recent tit-for-tat actions between Iran and Israel have intensified following the broader Middle East conflict linked to Gaza. Iran, an OPEC member, produces around 4 million barrels per day (bpd) and is projected to export 1.5 million bpd in 2024, up from 1.4 million bpd in 2023, according to U.S. data.
U.S. job growth slowed considerably in October, impacted by labor strikes and hurricane disruptions. This softer labor market data has raised expectations that the Federal Reserve could implement a 25-basis-point rate cut in its upcoming meeting. Lower rates reduce borrowing costs, potentially boosting economic growth and demand for oil.
Wall Street’s major indexes closed higher on Friday, recovering from the previous day’s sell-off as Amazon’s robust earnings offset concerns about a slowdown in U.S. job growth for October.
Amazon.com surged 6.33% following its Thursday earnings report, which highlighted strong retail sales and a profit that exceeded Wall Street’s expectations.
Despite the weaker-than-expected October nonfarm payrolls data, equity markets found stability. However, the unemployment rate held steady at 4.1%, reassuring investors that the labor market remains resilient.
As the U.S. election nears, investors are bracing for a tight presidential race, with the Federal Reserve meeting immediately afterward.
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