September
Non-Farm payrolls report, which will be released on Friday in the United States,
is extremely important to confirm if the Federal Reserve (Fed) will continue
with their no-matter-what aggressive monetary tightening. A strong labour
market would certainly mean a 75-basis points interest rate hike by the Fed in
November.
There were
serious doubts about this move early in the week after the Reserve Bank of
Australia raised its interest rates by only 25 basis points following the
announcement by the Bank of England that it would activate its unlimited QE
program by October 15. However, these doubts were diminished after the Service
PMI in the United States returned to a growth trajectory in September at 49.3
points after 43.7 points in August. U.S. located job vacancies dropped by more
than one million in August, but it was neutralised by positive Non-Farm
Payrolls predictions by the ADP and hawkish statements by Fed officials
suggesting further steep interest rate hikes.
There is no
reason to bet on a stock recovery in such circumstances and investors have rapidly
closed long positions at least before the publication of the Non-Farm Payrolls
data and the upcoming earnings report season. Consensus suggest that the
unemployment level in the United States would remain at 3.7%, while the U.S.
economy has added 250,000 new jobs outside the farming sector. Our statistical
modeling suggests that Non-Farm payrolls may be more optimistic, at
250,000-268,000 in September. But this would hardly convince the Fed to pull
the breaks on monetary tightening.
The S&P
500 index moved to the upside formation with targets at 3950-4050 points. But
there are serious doubts the index could reach them. Thus, a downside scenario
remains the primary one.
The oil
market was inspired by the unexpected decision of the Organisation of Petroleum
Exporters and its allies (OPEC+) to cut production by 2 million barrels per
day. A resounding political “slap” by OPEC+ pushed Brent crude prices to $96
per barrel. However, the real production cuts by OPEC+ are significantly lower,
around 0.4-0.6 million bpd, according to Goldman Sachs, as some oil-exporting
countries like Russia, Venezuela and Iran, were forced to cut production in
advance. Some African oil producers were experiencing production issues.
Overall, OPEC+ countries were behind the agreed output schedule by 3.6 million
bpd.
Nevertheless,
the aggressive downside formation is intact suggesting long-term price targets
at $50-60 per barrel of Brent crude benchmark by November.
Gold prices
are still above a strong resistance area of $1680-1700 per troy ounce. But
current developments suggest that gold prices are likely to return to the
downside trajectory soon with the target at $1680 per ounce and further down.
Additional short positions were opened at $1730 per ounce. However, elevated
geopolitical risks may jeopardize this downside strategy with some upside
spikes. So, more short positions are not recommended to be opened right now.
The money
market is stabilising. Traders may consider some short-term positions after the
release of the Non-Farm Payrolls data. Long-term signals are mixed as they
suggest that GBPUSD could rise towards 1.17000 from the current 1.12000 by the
end of October. On the other hand, EURUSD is signaling pressure this month. In
this situation risky long positions on the GBPUSD with the target at 1.17000
and distant stop-loss order are justified. Traders must remember that these
trades are valid until the end of October and should be executed at low
volumes.