The all important Non Farm Payrolls job report came in in-line with expectations, but unemployment fell from 3.7% to 3.5%. The strong US labour market is seen as a ‘Green-Light’ for the Fed. It is now expected that the Fed will continue to raise rates in the mega-chunks, of 75 basis points. This is what triggered the big sell-off in US equities, along with a growing number of US Corporate profit warnings. The data from Europe is confirmation of the dire state of the European economy. German Retail Sales contracted 4.3%, while the French trade deficit and Current Account soared, as imports exploded. The coming week will focus heavily on inflation across Europe and the USA. Markets are expecting an easing of inflationary pressure, calmed by falling Oil prices, but this is only a temporary reprieve, as OPEC+ have confirmed cuts to Oil production of 2 million barrels/day. Oil Prices are already marching upwards, blowing through US$90/barrel and marching towards $100/barrel, as the European winter approaches and China ramps up their economic output.
US Bond Yields continue to reflect the Central Banks monetary policy and inflationary pressures, with the US 10 year heading back towards 4%, while UK 10 year Gilts also firm, despite Bank of England intervention. The GBP crashed back to 1.1050, while the EUR fell to 0.9730. Markets will focus closely on the release of European CPI and PPI, along with the important US number.
Commodity currencies are suffering a blockbuster reserve and drifting commodity prices, as the US and European recession deepens. The AUD dropped to 0.6360, while the NZD struggled to hold 0.5600. Inflation and Central Bank action remain key to equity, bond and currency markets.