Dollar gains as ADP jobs report beats estimates. Yen falls on prime minister Ishiba’s dovish remarks. Pound collapses after BoE’s Bailey warns about faster cuts. Wall Street virtually unchanged, gold retreats, oil extends gains.
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Welcome to another episode of Global Market Insights, brought to you by XM.com, where we provide meaningful and informative content about the events that affect market trends and shape global markets. It's Thursday, October 3rd. This is the Daily Comment by Harala Bouspisuro, so I'm Christina Marukos, and thank you for joining us at XM.com. The dollar extended its gains against its major peers on Wednesday and during the Asian session Thursday. Although there was no further escalation in the Middle East, fears of retaliation by Israel, as well as data corroborating the view that another bolt cut by the Fed may not be necessary, allowed dollar bulls to stay in the game. Yesterday, the ADP employment report showed that private payrolls increased by more than expected in September, adding to evidence that the labor market is not slowing us previously expected. The report comes on top of Tuesday's Joel's Jobs opening data, which revealed that there were 1.13 openings for every unemployed person in August, up from 1.08 in July. The upbeat employment data encouraged market participants to scale back their aggressive rate cut bets, with the probability of a back-to-back 50 basis points cut by the Fed in November sliding to 35%. The total number of basis points' worth of rate reductions by the end of the year was also reduced to 70 from 75. Today, as they seek more evidence about how the Fed may proceed forward, investors may pay attention to the initial jobless claims for last week and the ISM non-manufacturing PMI for September. However, the highlight is likely to be tomorrow's non-farm payrolls report. Although Tuesday's and Wednesday's data are employing some upside risks, traders may remain cautious as history has shown that the ADP figure is far from a reliable predictor of the NFP print. What's more, on Monday, the ISM manufacturing PMI survey revealed that employment in the sector deteriorated further during September. The Yen was Wednesday's main loser as Japan's new Prime Minister Ishiba said that the nation is not ready for additional rate hikes. Ishiba, who secured leadership of the Liberal Democratic Party on Monday and was appointed as Prime Minister on Tuesday, was initially seen by the markets as a monetary hawk. Thus, his latest remarks served as a disappointment, with the probability of another 10 basis points hike by December dropping to around 45%. The euro slipped to a three-week low against its US counterpart after European Central Bank member Isabel Schnabel, who used to be an outspoken hawk, said that inflation in the euro area is increasingly likely to ease back to their 2% target. Following Lagarde's remarks that their confidence about inflation returning to target will be reflected at the next gathering, Schnabel's comments allowed investors to continue seeing 25 basis points rate cuts in October and December as a done deal. Today was the pound's turn to tumble as Bank of England Governor Bailey said in an interview with a Guardian that they could turn a bit more activist on interest rate cuts if data continues to suggest progress and inflation. The market is now nearly fully convinced that a quarter-point cut will be delivered in November, assigning a 65% probability for another one in December. On Wall Street, all three indices closed virtually unchanged as fears that Israel may retaliate against Iran soon do not allow investors to cheer data pointing to decent performance of the US labor market. That said, should tomorrow's official jobs report confirm the notion of a decently performing market, equities could rebound, even if this means fewer fed rate cuts down the road. Gold pulled back as the further strengthening of the dollar is making Bullion more expensive for other currency holders, but with a conflict in the Middle East, boiling over the prevailing up trend is likely to stay intact. Israel extended its gains corroborating the view that investors remain cautious about geopolitics. That said, black gold briefly moved above the key resistance zone of $72.70 and then it pulled back. This was today's Daily Comment at XM.com. Thank you for listening to another episode of Global Market Insights brought to you by XM.com. For more in-depth technical and fundamental analysis, be sure to visit www.xm.com/research. [BLANK_AUDIO]
