05/10/2022
⚠️️ TODAY MARKET FUNDAMENTAL UPDATES ⚠️️
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⚠️️ Nonfarm Payrolls: More Bad News for the Fed?
⛔ Federal Reserve officials have embarked on a crusade to vanquish inflation, raising interest rates at an astonishing pace in order to cool the labor market and demand in the economy. Chairman Powell has been adamant that this process requires a period of economic pain, which is a necessary evil since letting inflation run rampant would be even more painful in the long run. - This will be the final round of employment data before the next Fed meeting in early November, so it will be crucial in shaping expectations.
⛔ Market pricing is currently leaning towards a fourth 75 basis points rate increase in a row, assigning a 63% probability for such action. A solid jobs report could push that percentage even higher, adding fuel to the US dollar’s rally.
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⚠️️ RBA Fine-Tuning Hikes, Changing Mood of AUD
⛔ The Reserve Bank of Australia raised its rate by 25 points to 2.6%, against an expected increase to 2.85%. Previously, the rate had been hiked by 50 points four times since June. The same decision was also predicted by the market this time.
⛔ The AUDUSD pair lost 0.8% to 0.6450 on the surprise from the RBA, but on the back of general optimism in the markets, the pair rocketed higher, reaching 0.6550 at one point. At the time of writing, AUDUSD is trading near the day’s lows again as traders overestimate the outlook for monetary policy.
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⛔ US Dollar Pushes Lower as JOLTS Report Offers Downside Surprise - Job openings for August came in below expectations, potentially fueling the debate as to whether the labor market is showing signs of cooling.
⛔ August JOLTS came in at 10.053 million against a consensus estimate of 10.775 million. It is important to remember that this is simply one data point, and nonfarm payrolls data this Friday is likely to offer a better clue as to future Fed policy.
⛔ Nonetheless, markets have latched onto the narrative of a pivot following this print, with risk moving higher and yields lower.
⚠️️ Bank of Japan (BoJ) - Foreign Exchange Market Intervention
⛔ The Bank of Japan's ultra-loose monetary policy is under pressure from a swathe of global central banks embarking on a series of rate hikes and balance sheet reduction programs. While many central banks, including the Federal Reserve (Fed) and the Bank of England (BoE), are trying to navigate a tricky course of suppressing rampant inflation while leaving their economies with enough liquidity to grow, the BoJ has a different set of problems, namely anemic growth and consistently below-target inflation.
⛔ As interest rate differentials widen between Japan and other major economies, the Japanese Yen continues to weaken. And the Bank of Japan is not just standing by and letting this happen, it looks to be actively encouraging the move.