Market Report:
📦 A strike by US dockworkers that began this week could disrupt global supply chains still scarred by COVID disruptions. While not expected to cause as deep problems, it could cloud the Fed’s views on inflation as policymakers debate their next rate move. Even a short two-week strike risks reversing the fall in durable goods prices that’s helping anchor inflation. The strike may distort October jobs data by depressing reported payrolls and pushing up unemployment.
📈 Yesterday, job openings in the US showed an unexpected rise in August after two consecutive monthly declines, although hiring was soft. Resignations fell to the lowest level since August 2020, a sign of cooling confidence in the labour market. The slowdown in the labour market supports expectations that the Fed will cut rates again in November and December. Friday’s September employment report is expected to show moderate non-farm payroll growth of 140,000.
🏭 U.S. manufacturing activity held steady at weaker levels in September according to the ISM Manufacturing PMI which was unchanged at 47.2, indicating continued contraction. However, new orders improved rising to 46.1 in September from 44.6 in August, suggesting a potential rebound in coming months. Production also showed signs of recovering, with the output sub-index rising to 49.8 from 44.8 the prior month. GDP data showed manufacturing output rising at a 2.6% annualized rate in Q2 after a 0.2% pace in Q1, with further gains likely after recent Fed rate cuts. The manufacturing employment slump deepened in September according to the employment sub-index which dropped to 43.9 from 46.0 previously.
Market View:
📉 Markets suffered a setback yesterday in the face of Iran’s imminent attack on Israel. The S&P 500 retreated from the highs to the 5750 point area where it is now. The Nasdaq 100 lost its hard-earned 20,000 points and is now at 19,780 points.
💵 As one would expect from its safe haven nature, the dollar strengthened, the DXY index approached 101.50 points, retreating slightly since then. Global uncertainty is driving investment into safe haven assets such as US bonds, which in turn increases demand for the dollar, boosting its value in the markets. The EUR/USD has lost 1.11 and is currently trading in the 1.1070 area.
📉 European markets also fell. The DAX 40, which last week was approaching a new high in the 19,500 point area, has fallen to 19,095 points at the moment. The Eurostoxx 50 has also lost support at 5,000 points.
💰 Surprisingly, gold remains calm, trading below the September highs of $2,670/oz. Bitcoin has retreated sharply, falling more than $5,000 from the $65,000 area to the current price of just above $61,000. We comment on crude oil in the geopolitics section.
Geopolitics:
🌍 Yesterday crude oil gained more than 8% on the back of tensions in the Middle East. However, the price has reached levels similar to last week’s highs without prospering further, with Brent crude trading above $75.50 a barrel.
🚀 Iran launched a barrage of missiles at Israel in response to the assassination of Hassan Nasrallah, the head of Lebanese group Hezbollah, and IRGC commander Abbas Nilforoushan last week in Beirut, as well as the killing of Hamas leader Ismail Haniyeh in Tehran in July. The IRGC said it targeted Israeli military bases while Israel said it intercepted most of the nearly 200 projectiles fired. However, social networks have shown a multitude of images of heavy missile impacts and explosions over Israel. The attack marked Iran’s first reported use of new Fatah hypersonic missiles and included a cyberattack. Israel is vowing retaliation while Iran has warned against responding to its “self-defense” operation. Experts warn of the risk of the fighting spiraling into regional war without a change in US policy towards Israel.
🤝 It is relevant to note at this point that, China has a strategic partnership agreement signed with Iran in 2021 that includes economic and military cooperation. In the case of Russia, military cooperation is closer, and according to the United States, Iran is playing a fundamental role in supporting Russia’s military production. On the other hand, the US announced yesterday its full support and readiness to defend Israel or coordinate further attacks. The escalation and polarisation of the Middle East could be a trigger for a major conflict on a global scale.
🎙️ Democrat Tim Walz and Republican JD Vance debated yesterday in a surprisingly civil debate compared to the ugly election campaign marred by inflammatory rhetoric and assassination attempts. Vance avoided answering whether he would challenge the 2022 election results if Trump loses, while Walz accused Trump of instigating the January 6th Capitol attack. The debate covered topics like the Middle East crisis, taxes, and climate change in a generally cordial tone compared to the divisiveness of the campaign. Walz was questioned about past claims of being in China during the 1989 Tiananmen Square crackdown. Vance defended his support for Trump despite past criticisms, while distancing from a national abortion ban.
