Early Morning Call: USD holding recent gains ahead of Non-Farm Payrolls

Market overview

Thanks to a strong start to the week, equity markets are on track to post their first weekly gains in four weeks. Yet, APAC equity markets have been consolidating overnight, following a negative US session yesterday.

In Europe, indices began today’s session lower. UK Halifax house price index fell by 0.1% in September, after a 0.4% rise in August. On a year-on-year (YoY) basis, the index increased by 9.9%, down from a rise of 11.4% the previous month.

In Germany, industrial production and retail sales came short of economists’ expectations in August.

Forex

The currency market remains subdued as traders await latest US job data. Economists expect 250,000 job creations in September. The unemployment rate should remain at 3.7% and average hourly earnings are seen rising 0.3% month-on-month (MoM) and 5.1% YoY.

Fed policy makers will be particularly attentive to the non-farm payrolls (NFP) release, but it is very unlikely it will shift their mind when it comes to the next Federal Reserve (Fed) decision on rates. The Fed is widely expected to hike by 75-basis points for a fourth time in a row at their next meeting.

Newly appointed Fed board member, Lisa Cook is the latest to support the bank's broad consensus for continued interest rate hikes. In her first public comments on monetary policy, Cook said that US inflation "remains stubbornly and unacceptably high, and data over the past few months show that inflationary pressures remain broad-based.... [Inflation] must come down, and we will keep at it until the job is done."

Cook is the latest to relay the Fed's willingness to raise its target policy rate to a restrictive level, even at the risk of less economic growth and more unemployment. To quote just a few, Fed Governor Christopher Waller said yesterday: "I anticipate additional rate hikes into early next year". For Chicago Fed President Charles Evans, "Inflation is high right now and we need a more restrictive setting of monetary policy. " Neel Kashkari sees at this point "almost no evidence" that inflation has even peaked. Fed governors John Williams, Loretta Mester and Mary Daly also expressed their willingness to get rates into restrictive territory.

Earnings update

Elsewhere on the equity market, JD WetherspoonJD Wetherspoon posted a pre-tax loss before exceptional items of £30.4 million for the full year, while Superdry returns to profit after recording at statutory pre-tax profit of £17.9m.

Yesterday evening, Levi Strauss shares fell in extended trading after the group cut its full-year profit forecast. Levi Strauss posted earnings of 40 cents per share for the third quarter, three cents higher than consensus. Revenue missed expectations, as the denim maker had to deal with softening demand, a strengthening dollar, and persisting supply chain issues.

With inflation at decades high levels across the globe and a looming recession, consumers are moving away from higher-priced products and clothes to essentials such as food and energy. The strengthening also affected Levi Strauss margins, down 60 basis points compared to a year earlier at 56.9%. The company now expects full-year 2022 adjusted profit between $1.44 and $1.49 per share, compared to prior forecast of $1.50 to $1.56.

Commodities

Oil prices are showing small losses this morning. Yet, after this week's OPEC+ decision to cut output by two million barrels per day, WTI and Brent are set to clinch their first weekly gains in six weeks.

Oil traders await the Baker Hughes weekly data. Last Friday, total rig count rose by one to 765. The number of oil rigs in operation increased by two to 604, while the operational gas rig fell by one to 161.