Stocks slip and oil rallies ahead of NFP
29th September
Key takeaways
Global equities fell as oil above $105 and Fed hike bets pushed 10-year Treasury yields to their highest level since 2007.
The Trump-Xi summit delivered little beyond a two-month trade truce extension to January 10.
The dollar dominates G10 currencies, pressuring gold toward key support at $4,100.
Lukman Otunuga
Head of Market Research
Global equity markets flashed red on Tuesday
as rising oil prices and growing bets on higher US interest rates pushed Treasury yields to their highest levels since 2007.
Oil benchmarks extended gains for a second session amid a deadlock in US-Iran talks and signs of resilient demand, with Brent trading above $105 a barrel. With 10-year Treasury yields climbing to a 19-year high on the back of firming Fed hike bets, the move could inject fresh momentum into the dollar.
After considerable anticipation ahead of the Trump-Xi summit last week,
the most tangible outcome was a pair of pandas bound for Atlanta. The trade truce was extended, but only by two months, to January 10 pushing the harder questions further down the road rather than resolving them.
With economic data back in focus, attention now turns to the US PCE report and Friday's non-farm payrolls release. Core PCE was last running at around 3.3% year-on-year, comfortably above the Fed's target. Another hot print could reinforce bets on a further rate hike before year-end. Traders are currently pricing in odds of roughly 70% for an October hike, with expectations for a subsequent move by December running even higher.
Friday's jobs report could carry its own twist. A strong print is good news for the US economy and signals continued labour market resilience but a hawkish outcome from the Fed's perspective could translate into fresh pressure on US equities and non-yielding gold.
August payrolls blew past expectations, rising 162,000 against a forecast of roughly 55,000 nearly three times the consensus estimate. Another strong print could reinforce the Fed's hawkish camp and fuel bets on an October hike, while a softer print could ease those same expectations.
In the FX space, the dollar dominated markets last week on the back of rising yields, resilient US data, and growing conviction around further tightening. The greenback remains firmly in control across the G10 space this week, pressuring all of its major counterparts week-to-date.
A stronger dollar and rising yields could push gold toward the $4,100 support level. With rate-hike expectations elevated and oil benchmarks extending gains, gold bears may attempt to test $4,100, with $4,000 acting as the next significant point of support. Ultimately, this week's US August PCE report and Friday's payrolls data will likely set the tone heading into October.
Frequently asked questions
Rising oil, resilient US data, and firming bets on an October Fed hike are all reinforcing the case for tighter policy.
August payrolls blew past expectations at 162,000 versus a 55,000 forecast another strong print could fuel hike bets, while a soft one could ease them.
A stronger dollar and rising yields are pushing gold toward $4,100 support, with $4,000 the next level if that breaks.
