Financial market research and analysis

Last week global equity markets experienced a heavy sell off as US treasury yields rose sharply. Exceptionally strong US data combined with hawkish comments from the Fed’s Jerome Powell led investors to believe that the path of rate hikes could steepen. Fears that higher interest rates will dampen growth kept equities out of favour. The S&P shed 1% across the week, its worst weekly performance since September.

High rate concerns were fanned on the release of the US non-farm payrolls. The report was mixed with job creation dropping to just 134,000 in September, significantly below the 185,000 expected, as the impact of Hurricane Florence was noticed. However, August’s figures were revised higher to a staggering 270,000 from 201,000. The unemployment rate also dropped to 3.7%, its lowest level in almost 50 years. Meanwhile closely watched wage growth hit expectations at 2.8% year on year.

The bottom line is that the labour market continues to tighten, which is and will feed through to higher wages, creating inflationary pressures. This will continue to push rate expectations higher and pressure stocks lower.

Commodity Stocks in Focus On Mixed Chinese Data
Asian markets have taken the lead from the US and traded predominantly lower. European bourses are looking to follow suit extending Friday’s steep losses. On the FTSE heavily, weighted commodity stocks will be in focus, as metals across the board and oil sold off overnight. Growing concerns over the health of the Chinese economy were highlighted in a private Caixan service sector report. Non-manufacturing grew at its fastest pace in three months, the PMI hitting 53.5 from 51.5 in August. However, sentiment worsened, and firms started cutting jobs as higher costs squeezed profits. The sharp decline in employment shows dark clouds are forming on the horizon of the Chinese economy. This is hitting demand expectations for metals, which fell sharply lower.

Oil Drops As US Eases Stance
The US showing willingness to grant waivers to sanctions against Iran’s oil exports next month, combined with chatter that Saudi Arabia was replacing any shortfall in Iran’s production sent Brent 1% lower overnight. It’s no secret that Trump is after lower oil prices, yet his sanctions on Iran, due to start 4th November, will do anything but bring prices lower. An easing of tone by Washington and optimism that some nations will still be able to import some Iranian oil has dragged the oil price off its recent 4-year highs.

Brexit Optimism Lifts The Pound
The pound was manging to hold firm versus the dollar at the start of the new week. After the UK Tory conference passed without any major incidents. Brexit optimism did some heavy lifting for the pound across last week. Traders have reacted to the slight shift in tone in Brexit talks towards a more positive one. Rather than the argumentative, negativity both sides seem keener to reach a deal that is acceptable for both the UK and Brussels. A continuation of this more constructive tone could see the pound push higher.

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