First Light News: Tech Selloff Sparks Risk-Off Mood as Key US Data Looms

A firmer USD and tepid demand for Digital Currencies – BTC/USD punched 6.2% lower yesterday, down nearly 7.0% MTD – mixed with valuation concerns in US tech contributed to the broader risk-off environment.

Is this a healthy pullback or something to be concerned about? For now, I remain in the former camp and am biased toward dip-buying in Equities, given robust fundamentals. However, warnings that the record-breaking rally could be slowing are making headlines. Of notable mention is the fact that hedge fund manager Michael Burry – depicted in the film ‘The Big Short’ – recently wagered US$1.1 billion against prominent AI-related Stocks. Only time will reveal how this unfolds.

Moves into havens reflected yesterday’s defensive tone, with US Treasuries rallying (lowering yields across the curve) and the JPY catching a bid (up 0.4% versus the USD). At the same time, Gold pushed southbound and came within touching distance of range lows around US$3,925.

Soft New Zealand Jobs Data Helps Cement RBNZ Rate Cut

On the macro front, recent jobs data from New Zealand revealed the labour market effectively flatlined in Q3 25, missing economists’ expectations of a 0.1% gain. Unemployment also increased to 5.3% from 5.2% in Q2 – as expected – marking the highest level since 2016.

This soft reading prompted investors to fully price in a 25-bp rate cut from the RBNZ later this month, though trading out of this print proved challenging, particularly in the AUD/NZD cross, where price action remained choppy. Things were somewhat clearer in NZD/USD, reaching lows not seen since April. However, while the downside move was short-lived, it was certainly one that could have been scalped (0.3%).

US Data on Deck

With the US government shutdown reaching a record 36 days and surpassing Trump’s 35-day stint set in 2018, market participants will be closely watching US private sector data today for October: the ADP non-farm employment report at 1:15 pm GMT, closely followed by the ISM services PMI numbers at 3:00 pm.

As I previously noted, the recent ADP trend continues to point to a weakening in hiring momentum, with the September report showing the US cut 32,000 jobs and defied estimates for a 50,000 gain. Economists are expecting a gain of 28,000 today, with the estimate range between a high of 70,000 and a low of -20,000.

Should we observe further weakness in hiring, with a figure surpassing the estimate low, this would strengthen the argument for a December Fed rate cut and trigger a drop in US Treasury yields and the USD. Conversely, given only 1 out of 34 analysts polled (Goldman Sachs) forecast a gain of 70,000 (see below), if we see a number in this vicinity, I believe this will be enough to reaffirm Fed Chair Jerome Powell’s cautious statements last week and may result in a rise in yields and the USD.

As for today’s ISM services PMI print, following the ISM manufacturing PMI report on Monday – essentially a mixed bag that showed a contraction in the headline number to 48.7, along with the employment component increasing to 46.0 and prices easing to 58.0 – the upcoming numbers will be important and could open the door to a potential trading opportunity.

The median expectation for the headline number is a gain of 50.8 from 50.0 in September. Pronounced softening in the prices (previous: 69.4) and employment (47.2) components could have a marked impact on the buck to the downside, much like a soft print in ADP. Ultimately, should both ADP and ISM data come in weaker or stronger, this will naturally add fuel to any moves in the USD.

Written by FP Markets Chief Market Analyst Aaron Hill