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North American Morning Briefing: Stock Futures Nudge Lower; Traders Wary of Looming Jobs Data

MARKET WRAPS

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Weekly Jobless Claims

Opening Call:

Stock futures inched lower on Thursday as traders reflected on several volatile sessions and eyed looming jobs data.

The prospect of the Federal Reserve adopting a less restrictive monetary stance in the wake of some soft data and recent market turmoil--most notably in U.K. bonds--had been a catalyst for a sharp equity rebound, according to Henry Allen, strategist at Deutsche Bank.

"But over the last 24 hours, solid U.S. data releases have created a pushback against that narrative, since they were seen as giving the Fed more space to keep hiking rates over the coming months," Allen added.

Indeed, Fed speakers, such as Raphael Bostic, have continued to affirm the need for more rate hikes. On Thursday, Loretta Mester is due to speak at 8:50 a.m. and again at 6:30 p.m. In between, at 1 p.m., Fed governor Lisa Cook will deliver her first speech in her new role.

One crucial factor impacting Fed thinking is the health of the jobs market. Consequently, the looming nonfarm payrolls report, due on Friday, may be encouraging a period of cautious reflection among investors after the latest rally, said analysts.

The market had been arguably excessively bearish at the end of last week, with the S&P 500 at its lowest since November 2020, and the benchmark's 14-day relative strength index, a momentum gauge, at 28, where a number below 30 is considered in oversold territory. The subsequent recovery, up 5.5% since Friday's close, leaves the RSI at 46.

"There is nothing to suggest that the market will move out of range trade mentality ahead of Friday's major risk event, [the] NFP," said Stephen Innes, managing partner at SPI Asset Management.

"However, the fly in the ointment could be higher [oil] prices, as the knock-on inflation throughput, especially if $100 a barrel is tested, could keep the Fed higher for longer if energy inflation picks up again, " Innes added.

Forex:

The dollar has recovered some ground after recent falls and is likely to continue to do so ahead of the weekend, potentially around Friday's jobs report in particular, ING said.

"As we had expected, the dollar downtrend has started to prove unsustainable," ING said, adding that markets probably aren't yet ready to bet heavily on the Fed slowing the pace of interest-rate rises.

The jobs data has the potential to lift the DXY to around 112-113, ING said.

Bonds:

Government bond yields face opposing pressures from hawkish central banks and weak economic growth, Amundi said, maintaining an active and tactical approach.

Amundi is slightly cautious on duration--a measure of the sensitivity of bonds to changes in interest rates--mainly through Treasurys and core Europe, but it is positive on China and neutral on the U.K. amid the recent sharp movements, it said.

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Gilt yields rose after Fitch cut its outlook on the U.K. to negative from stable, following on from S&P's recent decision to reduce the country's outlook to negative.

Fitch said the reduction in the outlook reflected the "large and unfunded fiscal package announced as part of the new government's growth plan," which could "lead to a significant increase in fiscal deficits over the medium term."

Fitch affirmed the U.K. credit rating at AA-.

Energy:

Oil prices held modest gains post-OPEC, with SPI Asset Management saying the market is already tight and is expected to tighten further when an EU embargo on Russian oil comes into force later this year.

Other News: Shell warned that a steep fall in refining margins will have a negative impact of between $1 billion and $1.4 billion on its third-quarter adjusted earnings, while it also expects lower results from its Integrated Gas business.

Read more here.

Metals:

Metals prices rose across the board as traders once again pivot to risk assets on tepid signs of a macroeconomic recovery.

"The macro environment is on the bullish side of the ledger for the first time in four weeks," Peak Trading Research said.

   
 
 
   
 
 

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October 06, 2022 05:28 ET (09:28 GMT)

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