The major indices move slightly lower as investors contemplate Fed policy

• GLOBAL CAPITAL MARKETS OVERVIEW:

The Dow Jones index fell slightly by nearly 9 points on Friday, the S&P 500 index fell 0.2%, and the Nasdaq index fell 0.5%. The latest labor market data strengthened the view that the US economic recovery is unbalanced and far from complete. Last month, the U.S. economy added 194,000 jobs, the least so far this year, well below the expectation of 500,000 jobs. At the same time, the unemployment rate dropped to 4.8%, and the average hourly income rose slightly. However, as Washington reached an agreement to raise the debt ceiling to December and concerns about soaring inflation caused by soaring energy prices have eased, Wall Street recorded weekly gains. The Dow Jones index rose 1.2%, the best week since June; the S&P 500 index rose 0.8%, the highest since August; the Nasdaq index rose 0.1%. The Toronto Stock Exchange S&P/TSX composite index rose slightly to 20,425 points on Friday. After the latest data showed that Canada's employment rate had returned to pre-pandemic levels, indicating a solid economic recovery and offsetting much-lower-than-expected U.S. wage data, The index recorded a weekly gain of 1.4%. At the same time, the U.S. benchmark oil price rose to more than US$80 per barrel for the first time since November 2014. European stock markets closed mixed on Friday, ending a turbulent week. Investors were angered by increased inflationary pressures in the energy market, and technology stocks regained their seats amidst rising yields and increased uncertainty in the Fed's shrinking time. Roller coaster. After closing at a 5-month low on Wednesday, the Frankfurt DAX index rose 0.4% this week to close at 15,206. Considering only Friday, Germany's DAX, France's CAC40, and Spain's IBEX fell, while the UK's FTSE 100 index and Italy's FTSE MIB index rose. On Friday, the CAC 40 index fell 0.6% to close at 6560. Investors digested the lower-than-expected increase in non-agricultural employment in the United States, indicating a slowdown in work and increasing the uncertainty of the Fed's reduction schedule. At the same time, concerns about the possible spread of China's Evergrande Group's debt problems due to inflationary pressures and shortages of funds still exist. Among individual stocks, Veolia Environment and STMicroelectronics saw the most significant declines. This week, the CAC40 index rose 0.6%. FTSE MIB rose 0.2% to close at 26,051 points, continuing the 1.5% gain of the previous trading day. Energy sectors such as Tenaris (up 4.6%), Sepem (up 3.9%), and Egypt Nigeria Group (up 2.3%) rose, and WTI crude oil rose to $80 per barrel. At the same time, the US employment report was disappointing, showing that the US only added 194,000 jobs in September, which was lower than market expectations of 500,000 and the lowest level in 2021. After Congress agreed to raise the debt ceiling in the short term and inflation concerns eased, the US debt default eased, and the index closed up 1.7% this week. The FTSE 100 index edged up 0.3% on Friday to close at 7,096 points after the US employment report showed that non-agricultural employment growth in September was lower than expected. The unemployment rate fell to its lowest level since March 2020. Travel stocks rose among the best-performing stocks during the period because the British government would cancel quarantine requirements for 47 destinations. At the same time, the National Grid warned of the risk of power outages in factories and homes. This winter has increased, and the British Secretary of Commerce Kwasi Kwarteng has reiterated his pledge to "not rescue failed energy companies." This week, the index rose 1%. The major stock markets in the Asia-Pacific region closed higher on Friday, and the Chinese stock market resumed trading after the long holiday. The Shanghai Composite Index rose 0.67% to close at 3592 points, and there are reports that China's service industry rebounded in September. The Japanese stock market rose more than 1.34% to close at 28,049. The new Prime Minister, Fumio Kishida, vowed to lead Japan out of the COVID-19 crisis while preparing an economic stimulus package. The Australian Stock Exchange 200 index also rose 0.87% this week to close at 7320 points, and Sydney continues to prepare to end the more than 100-day confinement period. While easing political tensions between Beijing and Washington, the Hong Kong stock market rose 0.55%. New Zealand and South Korean stock markets fell 0.14% and 0.11%, respectively.

 

• REVIEWING ECONOMIC DATA:

Looking at the last economic data:

- CA: CFIB's long-term business barometer index is based on a 12-month outlook and fell 9 points to 57.8 in September 2021. This is the lowest level since November 2020. The uncertainty of the federal election results and the new restrictions and impact brought about by vaccine passports partially explain the sharp decline in optimism in all provinces and departments. The 12-month price and wage plans were 3.7% and 2.6%, respectively, maintaining the relatively high previous months' levels. The national employment plan was suppressed, and 19% of small employers plan to hire or lay off workers in the next few months. The short-term prospects of all industries have deteriorated, with the professional services, hotel, and construction industries experiencing the most significant declines. Long-term optimism in retail and agriculture has fallen the most.

- CA: As is widely expected, Canada's unemployment rate fell for the fourth consecutive month from 7.1% in August to 6.9% in September 2021. This is the lowest unemployment rate since the flu pandemic in February last year. In addition, some provinces have implemented or plan to implement vaccination certification requirements, allowing non-essential places to reopen more safely.

- CA: The Canadian economy added 157,000 jobs in September 2021, which significantly exceeded market expectations of 65,000 growth, and showed that the labor force expanded for the fourth consecutive month, enough to restore employment from February 2020 to before the pandemic s level. Employment creation is concentrated in full-time work (+194000), divided into the public sector (+78000) and private sector (+98000), while part-time jobs did not change much in September.

- US: In August 2021, US wholesale inventories increased by 1.2% month-on-month to US$731.1 billion, consistent with preliminary estimates, and accelerated from 0.6% growth in July. This is the 13th consecutive month of gains, with both durable goods (1.2% in July and 1.2% in July) and non-durable goods inventories (1.1% and -0.3% in July) increasing. Wholesale stock in August increased by 12.3% year on year.

- US: The U.S. economy added 194,000 jobs in September 2021, which is the lowest level so far this year and well below the expectation of 500,000 jobs. Employment opportunities in the leisure and hotel industry (74,000 people), professional and commercial services (60,000 people), retail (56,000 people), and transportation and storage (47,000 people) have increased. However, the number of public education employment declined this month (-191K). This month, public education employment declined (-161,000), and the number of healthcare employment also declined (-18 million). Non-agricultural employment has increased by 17.4 million since the most recent trough in April 2020, but it has fallen by 5 million, or 3.3%, from the pre-pandemic level in February 2020.

- US: In September 2021, the average hourly earnings of all employees in private non-agricultural jobs in the United States increased by 19 cents, or 0.6%, to $30.85. It had risen in the previous five months and was higher than market expectations of 0.4%. In September, the average hourly earnings of private-sector production and non-regulatory employees increased by 14 cents to $26.15. Data in recent months indicate that the rising labor demand associated with the recovery of the epidemic may have put upward pressure on wages. However, due to the significant differences in average hourly earnings across industries, the colossal employment fluctuations since February 2020 have complicated the analysis of recent trends in average hourly earnings. Compared with last year's same period, the average hourly income increased by 4.6%, in line with market forecasts, after a downward revision of 4% growth in August.

- US: In September 2021, the US unemployment rate fell to 4.8% from 5.2% in the previous month, which was lower than market expectations of 5.1%. This is the lowest rate since March 2020, when the job market is steadily recovering. In addition, the adverse effects of the summer peaks of Hurricane Ida and Delta Variations are beginning to fade. However, due to the continuing labor shortage, the unemployment rate is still much higher than the pre-crisis level of about 3.5%. Still, as companies fill a large number of vacancies and more workers return to the labor market, the unemployment rate will fall further in the coming months.

- TW: Taiwan's trade surplus fell from US$7.1 billion in the same month of the previous year to US$6.5 billion in September 2021, but it was higher than market expectations of US$4.2 billion. Exports increased by 29.2% year-on-year, setting a new record of USD 39.65 billion, higher than the market forecast of 25%. The main reason was the continued demand for technology products (29.8%), including electronic product parts; and information, communications, and audio-visual products (22.8%). In addition, base metals and base metal products (60.7%), plastics and rubber and their products (32.5%), and machinery (28.2%). At the same time, imports increased by 40.4% to 33.2 billion U.S. dollars, lower than market expectations of 41.2%. The major trading volume is mineral procurement (97.6%); machinery (up 44.5%), electronic product parts (up 30.7%), chemicals (30.8%) and information, communications and audio-visual products (51.8%) .

- EU: Germany's trade surplus has shrunk from 11.9 billion euros a year ago to 10.7 billion euros in August 2021. This is the smallest trade surplus since May 2020, as exports have grown lower than imports. Exports increased by 14.4% to 104.4 billion euros, exports to the EU increased by 15.7%, exports to China increased by 4.4%, exports to the United States increased by 22.4.7%, and exports to the United Kingdom decreased by 15.1%. Imports surged by 18.1% to 93.9 billion euros, of which purchases from the European Union (11.2%), China (20.4%), and the United States (12.3%) increased, while sales to the United Kingdom declined (-7.9%). Compared with February 2020, in the month before restrictions were imposed due to the German coronavirus pandemic, exports increased by 0.5%, and imports increased by 9.9%.

- CN: In September 2021, Caixin China's general service PMI jumped to 53.4 from a 16-month low of 46.7 last month. Both new orders and employment rebounded to expansion areas, and the significant new crown epidemic in the eastern province of Jiangsu has eased. At the same time, outstanding business continued to increase, but at a slower rate. At the same time, due to the surge in overseas epidemics, new export sales shrank again, hitting the lowest level in seven months. In terms of costs, due to rising labor, freight, and raw material costs, input prices rose for the 15th consecutive month and increased at a faster rate. At the same time, the fees charged rose after falling in August. Looking ahead, market sentiment remains optimistic, and business expectations indicators have increased further, although they are still below the long-term average.

- CN: People's Bank of China injected a total of RMB 10 billion into the financial system for a seven-day reverse repurchase at an interest rate of 2.2%. This is the first time that funds have been injected into the financial system after a one-week holiday. The central bank stated that the move aims to maintain reasonable and adequate liquidity in the banking system.

- AU: The Reserve Bank of Australia stated in its semi-annual financial stability assessment report that due to low interest rates, Australian house prices have risen sharply, and borrowing has accelerated. The report added: "If the strength of the housing market turns to prosperity, borrowers take greater risks, given the expectations of further housing price increases and the possibility that banks may loosen lending standards, then the vulnerability may increase." In response to this threat, the Australian Prudential Regulation Authority (APRA) earlier this week announced a tightening of housing loan rules to ensure that borrowers can repay loans. The central bank reiterated that as the vaccination rate rises and the blocked states are gradually reopening, the economy is expected to rebound. However, given the risk of more severe outbreaks locally and globally, the long-term outlook is uncertain.

- JP: Japan's current account surplus fell from 2,085.2 billion yen in the same month of the previous year to 1,656.5 billion yen in August 2021, while the market expected a surplus of 1,540.9 billion yen. The merchandise account surplus fell from 404.4 billion yen a year ago to 372.4 billion yen. Exports grew by 27.1%, while imports grew faster by 45.9%. At the same time, the primary income surplus increased to 2,435 yen. Nine billion yen, compared with 22547 billion yen in the previous year, the service account gap narrowed from 326.2 billion yen to 194.9 billion yen. The secondary income gap narrowed from 247.8 billion yen to 193.1 billion yen.

- JP: Japan's average cash income increased by 0.7% year-on-year in August 2021 and increased by 0.6% in July after a downward revision. This is the sixth consecutive month of wage growth. Mining and quarrying (17.2%), construction (1.1%), manufacturing (2.7%), transportation (2.5%), wholesale and retail (0.3%), Real estate and leasing (5.0%), service (3.0%) and scientific research (2.0%) revenue growth. In contrast, revenues from utilities (-0.1%), information (-2.4%), accommodation (-1.0%), finance and insurance (-2.8%), and education (-1.7%) declined. At the same time, fixed compensation rose by 0.2% year-on-year, marking the eighth consecutive month of increase. Overtime pay is a barometer of business activity, and it increased by 6.5% year-on-year in August. Special payments increased by 2.0% year on year.

- JP: In August 2021, Japanese household spending fell by 3.0% year-on-year, while market forecasts are for a 1.5% drop and 0.7% increase in the previous month. Food (-3.2% versus -1.9% in July), clothing (-11.5% versus -2.7% in July), transportation and communications (3.4% versus -14.2%), culture and entertainment (3.9% versus -1.7% ), furniture and home (9% vs -8.4%), medical care (8.6% vs -7%), and fuel, lighting and water (0.9% vs -5.9%). In contrast, housing expenditure (5.9% versus -1.7%) and education expenditure (3% versus -9.9%) have increased. On a monthly basis, household expenditures fell by 3.9%, and it is generally believed that household expenditures fell by 2.0%, which fell by 0.9% in July.

 

• LOOKING AHEAD:

Today, investors will receive:

- USD: FOMC Member Evans Speaks, NFIB Small Business Index, JOLTS Job Openings, FOMC Member Clarida Speaks, FOMC Member Bostic Speaks, and 10-y Bond Auction.

- EUR: German WPI m/m, ZEW Economic Sentiment, and German ZEW Economic Sentiment.

- GBP: BRC Retail Sales Monitor y/y, Average Earnings Index 3m/y, Claimant Count Change, and Unemployment Rate.

- JPY: Bank Lending y/y, PPI y/y, and 30-y Bond Auction.

- NZD: Visitor Arrivals m/m.

- AUD: NAB Business Confidence.

 

• KEY EQUITY & BOND MARKET DRIVERS:

- Nonfarm payrolls growth was disappointing, but private-sector payrolls were closer to expectations

- The unemployment rate dropped to 4.8%, while average hourly earnings increased more than anticipated.
- The Senate passed a bill to extend the debt ceiling until December. 3.
- U.K. 10-year government bond yield rises to a 29-month high at 1.153%.

- New Zealand 10-year government bond yield rises to a 29-month high of 2.07%.
- The benchmark U.S. 10-year Treasury bond yield rose to over 1.6% on Friday, the highest level in four months. Earlier, as investors were digesting the latest labor report, the yield fell to 1.56% earlier in the trading day. Last month, the U.S. economy added 194,000 jobs, the least so far this year, well below the expectation of 500,000 jobs. At the same time, the unemployment rate dropped to 4.8%, and the average hourly income rose slightly.
- The Chinese stock market rose 24 points. China Fortune (9.98%), Air China (8.20%), and Sanan Optoelectronics (7.19%) contributed to this growth. The most significant losses came from Huaneng (down 10.04%), power companies (down 9.68%), and Datang International (down 6.96%).
- The Japanese stock market rose 392 points. Leading the gains were Mitsubishi Motors (5.52%), Canon (4.07%), and SoftBank (3.82%).
- European futures held steady on Friday, in line with their US counterparts, and investors waited for the US employment report to be released later in the day, which may provide more clues to the Fed's reduction of the timetable. However, as there are no significant economic data releases or company performance, the European market is expected to calm down in the morning. In addition, as concerns about the global energy crisis and soaring inflation have eased, all major stock markets are expected to end the week's green volatility.

 

• STOCK MARKET SECTORS:

- High: Energy, Financials.

- Low: Real Estate, Utilities, Materials, Health Care.

 

• TOP CURRENCY & COMMODITIES MARKET DRIVERS:

- USD: The US dollar index stabilized at 94.2 on Friday, close to the highest point in a year, as the Fed may begin to reduce monthly bond purchases as early as November and raise interest rates next year. In the most recent data, the number of Americans who applied for new unemployment benefits last week dropped by the most significant amount in three months, indicating that the labor market recovery is regaining momentum after the recent slowdown, as the wave of new crown virus infections is beginning to ease. Traders are now waiting for the highly anticipated employment report, which will be announced later in the day. In addition, the Senate approved a bill on Thursday to help Washington avoid debt defaults in the coming weeks on the political front. The bill is now being submitted to the House of Representatives, and Speaker Nancy Pelosi is expected to begin deliberation of the bill in the next few days.

  • OIL: As of October 8, 2021 (Friday), the number of active drilling rigs in the United States increased by five units compared to the previous week and amounted to 533 units. The number of oil rigs increased by five units to 433 units, the number of gas rigs remained unchanged, amounting to 99 teams. The share of oil rigs rose to 81.2% in the total drilling volume, while the share of gas rigs dropped to 18.6%. An increase in drilling was observed in horizontal wells, while drilling of vertical wells decreased. The primary drilling growth has occurred in the states of Texas and West Virginia. The number of wells drilled in October was 530 units against 508 units in September 2021, and a minimum of 249 units was observed in August 2020. According to preliminary data from the EIA, oil production in the United States in October amounted to 11.30 million barrels per day.

 

• CHART OF THE DAY:

The Canadian dollar rose 1.25 against the U.S. dollar on Friday, after briefly hitting a more than two-month high of 1.245, supported by the prospect of another downward revision of the Bank of Canada bond purchase plan with better-than-expected employment data. The Canadian economy has added a net of 157,000 jobs, which is much higher than the market's expected 65,000 growth jobs, entirely attributable to full-time employment. Additional support came from the price of oil, a primary export product of Canada, whose price rose to US$80 per barrel. However, in other respects, non-agricultural employment increased by only 194,000, which was much lower than the 500,000 predicted by analysts. Moreover, it was the slowest increase in nine months. After that, the dollar weakened. On a weekly basis, the index will rise 1.2%.•  USDCAD - D1, Resistance around ~ 1.29377, Support (target zone) around  ~ 1.22416 & 1.18920.

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