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Dollar, Stocks, and Fed’s Inflation Warning – NFPs Ahead

As we enter the final trading day of the week, recent market activity has dispelled any lingering speculative bias, and one of the most well-known economic indicators is set to release, which has the potential to increase volatility.

It appeared at the start of this week that a speculative bias had brought the market back into one of its well-known cycles. The first 48 hours of trading in October and the fourth quarter provided disproportionate support for bullish sentiment. 

However, the subsequent two trading days appear to have completely broken the speculative cycle.

The S&P 500 opened with a significant bearish gap on Wednesday, but the index quickly gained back a significant amount of the lost ground. This session’s gap lower and subsequent slide from the same index left us -1.0 percent lower close to close, showing little sign of trying to claw our way back to the top.

S&P 500 with Volume, 5-Day ATR and 5-Day Historical Range (Daily)

S&P 500 with Volume, 5-Day ATR and 5-Day Historical Range (Daily)

The retreat doesn’t simply cede control to the bears. Rather, the next stage of market movement seems to open to the collective winds of market conditions, fundamentals, and technicals. 

September US NFP Forecast

The September nonfarm payrolls are scheduled to be released in the US session on Friday, ahead of the official opening of the New York stock market. The BLS data update actually covers a wide range of pertinent statistics, including the unemployment rate, participation rate, and average hourly earnings. Nevertheless, the payrolls figure is the one that the general public in trading is most familiar with.

For this month’s jobs report, analysts anticipate a net increase of 250,000. With the potential to be surprised in either direction, that establishes the baseline for the market response. We have taken in information over the past week that would make speculators suspect a beat, miss, and in-line from the most crucial data point.

The manufacturing PMI’s employment component for September fell sharply below the 50-point threshold, and the JOLTs job opening figure fell by 1.1 million positions in the same month. On the plus side, the labor component of the ISM services sector, which accounts for three-quarters of employment, remained stable.

Regarding the ADP private payroll update, the 208,000 figures were essentially as predicted. Although there are probably different expectations for the data, there is probably bias in the larger, more fundamental picture. 

As employers compete for talent, it is generally accepted that a tight labor market will result in higher wages. However, wage growth has lagged behind inflation so far this cycle. which indicates that the real average wage has been declining for a while.

Due to lower purchasing power for the average American, this could contribute to demand destruction. This implies a higher risk of a recession, according to the most popular economic theory among central bankers and the government. 

Feds Warning To Tame Inflation

In fact, the fact that wages aren’t rising as quickly as inflation could spur the Fed to tighten even more quickly. The Fed actually prefers a tight labor market since it promotes economic growth, so long as wages aren’t significantly outpacing inflation.

Hence, it matters whether the official US employment report meets, exceeds, or falls short of projections. The market’s underlying conditions, however, may distort the market’s response amplitude.

Recently, the Federal Reserve has seemed to be sending out a coordinated message that essentially serves as a warning that they will not back down from their main fight against inflation, even if the markets throw a fit.

Neel Kashkari, the president of the Minneapolis Federal Reserve, reiterated on Thursday that inflation was a top priority, but he also predicted that the financial market would experience some cracks as the interest rate regime shifted higher. 

Although it may come as a surprise to hear one of the US central bank’s most dovish members say this, the support was what really brought the situation to light.

A short while later, Board Governor Christopher Waller made it clearer in a commentary that the Fed would continue its tightening course even if problems began to arise for financial stability measures. 

Market Watchlist Next Week….

Although there won’t be much economic activity next week, it may be a long one for market movers as several important inflation readings, such as the producer price index (PPI) and the consumer price index (CPI), are expected to be released.

Investors will also scrutinize the most recent Federal Reserve meeting minutes, with notable companies like Citigroup (C), Delta Air Lines (DAL), Domino’s Pizza (DPZ), JPMorgan Chase (JPM), Morgan Stanley (MS), PepsiCo (PEP), UnitedHealth (UNH), and Walgreens Boots Alliance (WBA) scheduled to report, another earnings season is also creeping up.

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  • Phyllis Wangui

    Phyllis Wangui is a Financial Analyst and News Editor with qualifications in accounting and economics. She has over 20 years of banking and accounting experience, during which she has gained extensive knowledge of the forex, stock news, stock market, forex analysis, cryptos and foreign exchange industries. Phyllis is an avid commentator on these topics and loves to share her insights with others through financial publications and social media platforms.