October 04, 2024

“There are several crosscurrents moving through the markets today. What form a retaliatory strike takes in the Middle East over the coming days could be critical for risk appetite and global economic disruptions, and today’s non-farm payrolls will be watched closely for signs of further labour market weakness.”

Sam Cornford – Head of Trading

USD

How things can change in a week. Last Thursday the dollar was trading at a 14-month low, and this morning it is hovering near a 6-week high. It is rebounding on some positive US macro surprises and a spurt of safe haven demand, owing to nerves about geopolitics and commodities. Biden’s admission that the US and Israel are discussing targeting Iranian oil facilities in a retaliatory strike put a dampener on risk appetite yesterday, and with CHF and JPY suffering from their own weaker rates stories, the US dollar was the only one really able to capitalise. A 1.5-year high in ISM services sector expansion handed it a further boost, and it is worth pointing out that Citi’s US economic surprise index is now in positive territory for the first time since May – in other words, the US macro data is now proving to be stronger than economists are estimating. Today’s non-farm payrolls and unemployment figures are set to shift the dial on Fed pricing, and the consensus is looking for 150k and 4.2%. 25bps in November and December is the base case for markets after Powell’s hawkish pushback earlier this week and the strong macro data.

GBP

Sterling is nursing some heavy losses this morning after Governor Bailey’s suggestion that the Bank of England could deliver something more ‘aggressive’ than the market appeared to be pricing. It fell over 1% on the day and we are down 1.7% on the week. A speech from Chief Economist Huw Pill this morning could help to cushion its fall if he is considerably more hawkish – he tends to be a little bit of a wildcard at times. The only piece of data today is the construction PMI, so traders will be keeping an eye on geopolitics and the US this afternoon.

EUR

Perhaps because it has already taken a beating over the past week, the euro proved to be surprisingly resilient to a broad rise in the dollar yesterday. Partly, it appears that there is little appetite to trade EUR/USD back below 1.10 for the time being, although developments over the weekend could be enough to make that step. Amid a lull in the data releases, it is trading at the mercy of geopolitics, US rates, and oil prices – some further risk aversion and a strong US payrolls report could be enough to tip it into a lower range. In other news, final revisions to the September PMI index kept it in contractionary territory but were slightly more positive than previously suggested, having been revised up from 48.9 to 49.6.

Markets

Supply chain fragility and the commodities market are the talk of the town this week. Oil jumped 5% yesterday after Biden unexpectedly said that the US and Israel were considering strikes on Iranian oil facilities. As it stands, this week could be its biggest rise since early last year. The hit to risk appetite made for some soft trading in the equity markets, with most major indices edging lower.

Main Economic Events (All Times CET)

7:45am: Swiss Unemployment
9:55am: BoE’s Pill speaks
10:30am: UK Construction PMI
2:30pm: US Non-Farm Payrolls

To learn more about Ballinger Group, please visit our website or our LinkedIn page.