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NFPs Ease S&P 500's Record Breaking Run, Dollar Advance But Ends Neither

NFPs Ease S&P 500's Record Breaking Run, Dollar Advance But Ends Neither

John Kicklighter, Chief Strategist

Talking Points:

  • With the market expecting a volatile US payroll report due to devastating hurricanes, there was limited surprise in a -33K loss
  • The Dollar's slow progress towards reversal was tripped up by the jobs report and liquidity, but wage growth adds weight to hikes
  • VIX still registers unsustainable extremes, but will North Korea, Moody's, the IMF global updates or positioning rebalance?

What are the DailyFX analysts' fundamental and technical forecasts for the Dollar, Euro, equity indexes and more through the fourth and final quarter of the year? Download the recently-released 4Q forecasts on DailyFX.

As expected, the September nonfarm payrolls (NFPs) proved surprising; but the market was prepared for the outcome. A 33,000 net position loss for the US economy fell well short of the 80,000 addition expected, but the figure was well within the wide margin of error to be expected given the displacement that resulted with the destructive hurricanes through the month. The miss was enough to at least cool the neck break pace of US equity indexes' rally. The S&P 500 capped its consecutive daily run at 8 (a 13-year record) but it did not signal any serious effort to reverse this extreme extension of a mature bull trend. Nor would the priced-for-perfect VIX offer a material rebound with the dubious jobs figures. After briefly jumping above 10, the activity measure fell back below that extreme low threshold to extend an unimaginable trend from an increasingly unreliable uncertainty measure.

For the Dollar, the labor report would also serve a trip point. While the DXY Dollar Index rose above 94 intraday, the benchmark would not sustain its recovery run. Given the circumstances, the net payroll miss would not undo years of labor market improvement and at the same time, the jobless rate dropping back to 4.2 percent is taken with a grain of salt. The climb in the average hourly wages figure to a 2.9 percent annual pace however comes with a certain degree of interest. This wellspring of inflation is certainly influenced by the hurricanes as well, but it is likely a far smaller adjustment. Most Fed officials speaking this past session met the data with circumspection but no change in view for a likely hike by year-end. There was one exception however. Bullard has used similar remarks to ardent dove Kashkari in worrying that normalization of extreme monetary policy thus far may hurt the economy. Looking ahead to next week, there will be plenty to stir up monetary policy speculation for the Dollar including the US CPI reading, FOMC minutes and a range of Fed speeches.

Other regions will have their monetary policy bearings teased by event risk. ECB President Mario Draghi's speech with a known dove after his missed event this past week, the RBA financial stability report, the BoE's lending survey, even the IMF's economic and market stability updates will all influence individual regions' and the global monetary policy outlooks. As for sentiment trends, uncertainties like the Moody's after hours rating for the United States, North Korea threats to test another missile and positioning itself pose meaningful threats to the ignorant bliss current market bearings seem to be forcing. If we start off next week with no abrupt changes from how we left off last week, I will re-evaluate Dollar based opportunities like (re-entering) EUR/USD, USD/CHF, USD/CAD and AUD/USD. Keeping an eye on other non-risk derived developments will also be important. Oil's tumble to close out this past week could have found inspiration from the rebound from storms or the OPEC+ developments, but is more likely a reflection of a new normal in markets. That may also be true of Bitcoin and other digital currencies where a drop in volatility could propagate a reduction in speculative interest. We discuss what the markets hold for us next week in this weekend Trading Video.

NFPs Ease S&P 500's Record Breaking Run, Dollar Advance But Ends NeitherNFPs Ease S&P 500's Record Breaking Run, Dollar Advance But Ends Neither

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