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European Markets Digest US Data

European Markets Digest US Data

US markets are closed today for a public holiday and this means that volume in the European markets is likely to remain on the downside. The main event for this week is going to be the US FOMC Minutes and investors are likely to keep things quiet ahead of this event especially after better than expected US NFP data.

The Message From The US NFP Data

The employment data for September gave confidence to the Fed that the labour market is still robust. Traders now have evidence that the Federal Reserve will have to do more to control inflation more aggressively and worry less about the slowdown in the US economy.

The increase in nonfarm payrolls of 263,000 was only slightly below than what analysts had anticipated. It is important emphasize that it was the weakest monthly advance in almost an entire year and a half, and this is something that traders need to keep in mind when they think of the Fed’s next move. 

However, the markets received a loud and unambiguous signal that more significant increases in interest rates are on the horizon as a result of an unexpected decline in the unemployment rate as well as another increase in worker earnings.

In September, average hourly wages increased by 5% on a year-over-year basis, which was a modest slowdown from the 5.2% rate of growth seen in August but nevertheless suggests an economy in which the cost of living is rising. On a monthly basis, hourly wages went up by 0.3%, which is the same increase as seen in August.

The Fed’s plan is highly dependent on the data, but officials have made it clear that it would take a lot to derail them off their route to 4.5%, and they are as follows: Throughout the course of the week, policymakers of many stripes fought back against investor predictions that recession concerns or even volatile financial markets may discourage people from investing.

Christopher Waller, a governor of the Federal Reserve System, was speaking at the University of Kentucky on October 6th and remarked, “until we see any indicators of inflation starting to reduce, I don’t see how we halt.”

While there is reason for hope that the argument for less inflation is beginning to emerge, there is also a feeling that this is a fight that the Fed can’t lose — even at the cost of a slowdown in the economy. This war is being fought in the United States. The projections made by officials in September reveal that six of them believe that interest rates would go to a range of 4.75 percent to 5 percent the following year. This view is likely to gain support if price pressures do not abate as predicted.

Commodities

In terms of the commodity market, traders are going to keep a close eye on the soaring oil prices which recorded a decent week on Friday. It is clear now that OPEC+ has made its position clear that it wants to keep the price stable no matter what. The US and Biden administration are annoyed that OPEC+ has taken this step to cut production by this much and now the chances are that the US may begin to ramp up more production which may deteriorate oil prices.

As for the gold prices, the US NFP data has made the dollar index stronger and it is clear that the Fed has a strong green light to increase the interest rate by 75 basis points in their next meeting. It is still unclear if the Fed will increase the interest by 75 basis points in its two upcoming meetings and the clues for this can be taken from the main event of this week which is the FOMC Minutes due on Wednesday. The event is going to be the major event for gold traders and if the Fed shows its hawkish side, we are likely to see the prices falling further.