Trade AI Forecast: How will the Dollar, Interest Rates, and Stock Markets move with the October 2nd US Employment Report?
In the market on October 2nd, the US September employment report, to be released tonight, is the most important factor to watch.
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Review of the previous forecast
Last time, the US August PCE price index was released.
The PCE price index rose 0.3% month-on-month, and the core PCE, excluding food and energy, rose 0.2%. Year-on-year, the PCE was 3.4% and the core PCE was 3.0%.
The month-on-month core figure fell below the market expectation of 0.3%, causing expectations for an additional interest rate hike by the US Federal Reserve (FRB) in October to recede.
However, it is important to note that the year-on-year figures were below expectations (PCE 3.7%, core 3.3%). Due to an annual revision of the calculation method, the July figures were also revised to 3.4% and 3.0%, meaning the levels for July and August are the same after the revision. It is not the case that ‘inflation suddenly settled down in August’.
On the other hand, real personal consumption increased by 0.6% in August, the largest growth in about a year and a half. The resilience of the economy remains.
Tonight’s US Employment Report
The US September employment report will be released at 21:30 Japan Standard Time.
Market expectations are for non-farm payrolls to increase by about 90,000 (84,000 to 90,000 range), with the unemployment rate remaining flat at 4.1%. Average hourly earnings are expected to be around 3.1% year-on-year.
The number of employed persons in August increased by 162,000, significantly exceeding expectations, but July only saw an increase of 21,000, indicating large monthly fluctuations. The focus this time is on whether the strength seen in August will continue or if it was temporary.
If employment significantly exceeds expectations, vigilance toward additional interest rate hikes will intensify, becoming a factor for the rise of the dollar and US interest rates. This could weigh on interest-rate-sensitive high-tech stocks.
Conversely, if employment is weak, expectations for interest rate hikes will recede, which could become a supporting factor for the stock market.
However, it is not just the number of employed persons that should be watched. In a phase where vigilance against inflation is high, average hourly earnings, the unemployment rate, and revisions to past data are considered to have a greater impact on the outlook for monetary policy. Some view that if the results are as expected, the market reaction will be limited.
High US interest rates and crude oil prices
Another factor to watch is the bond market and crude oil prices.
The US 10-year Treasury yield rose to a high of 5.34% on October 1st, the highest level since early 2002. It subsequently fell slightly and has been hovering in the 5.2% range in the Asian market on the 2nd.
The background includes the persistence of inflation, large-scale government borrowing, and solid growth, with OIS (Overnight Index Swaps) pricing in additional interest rate hikes by the end of the year. The rise in long-term interest rates affects corporate financing costs and the perceived overvaluation of stocks, making it a factor that tends to weigh on the stock market.
Crude oil prices are also at high levels. In trading on the 2nd, Brent crude oil is hovering around $102 per barrel, and WTI crude oil is around $93 per barrel.
Saudi Arabia is increasing exports through detours such as ship-to-ship transfers, but damage to pipelines and restrictions in the Strait of Hormuz continue, and the crude oil market is moving while watching both supply and geopolitical factors.
If crude oil prices remain high, inflationary pressure will persist, making it easier for expectations of additional interest rate hikes to remain.
In other words, in the current market, the US jobs report, US interest rates, and crude oil prices are all influencing each other.
Market environment on October 2nd
In the current market, the improvement in inflation indicators seen in the PCE (including the impact of the revision to the calculation method) is competing with still-high US interest rates and crude oil prices.
If tonight’s jobs report is strong, rising interest rates and a stronger dollar are likely to be in focus, which could weigh on the stock market. Conversely, if it is weak, expectations for interest rate hikes may recede, which could serve as a support factor for the stock market.
If the results deviate significantly from expectations, the direction of the market could change.
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