Week In Review: Inflation Fears, Oil Rally Continues, Huge NFP Miss

Monday kicked off in a risk-off fashion with global stocks tumbling after trading in shares of heavy indebted China Evergrande was suspended. Concerns over rising inflation and stalled talks in Congress added to the cautious mood, dragging global equities lower. In the commodities arena, oil prices rallied after OPEC+ decided to increase their output by more than previously agreed.

Our trade of the week for none other than gold. We questioned whether the precious metal was experiencing a calm before the NFP storm. After experiencing its biggest monthly loss since June in September, gold initially entered the new month on a choppy note thanks to conflicting themes. After swinging between losses and gains for most of the week, gold experienced an explosive burst of volatility on Friday following the disappointing NFP report. Prices rallied as high as $1791 before sinking back below $1760.

Speaking of commodities, oil prices pushed to multiyear highs after OPEC+ decided not to increase their output despite calls from world leaders to pump more. While the jump in oil prices may be good for OPEC+, it places many energy consumers under threat, especially those that are already dealing with high inflation.

On Tuesday, markets were gripped by inflation concerns. Surging oil prices stoked concerns about global inflation. Mid-week, our technical outlook focused on the dollar ahead of the US jobs report. Attention was also directed to the ADP National Employment Report for September which exceeded market expectations. Private sector employment increased by 568,000 jobs last month, up from 374,000 in August and well above the 428,000 market expectations. While not a great predictor of the non-farm payroll headline number, it is seen as a very rough guide over how the labour market is faring.

Interestingly, the risk-on mood returned on Thursday as progress on the debt ceiling talks in the United States boosted global sentiment. The positive sentiment was also helped by Russia’s offer to stabilize global energy markets. As the US jobs report loomed, the question on the mind of many investors is whether this report will pass the Fed’s taper test. Recently, Fed Chair Jerome Powell stated that additional job gains in September would give policymakers the thumbs up to start tapering in November.

Well…. the US jobs report was another big miss. The US economy created just 194,000 jobs in September, well below the 500,000 forecasts while August’s numbers were upwardly revised to 366,000 from 248,000. In regards to the unemployment rate, it declined for the third straight month, falling from 5.2% to 4.8%. Average hourly earnings rose 0.6% – beating expectations. Overall, September’s jobs growth has been the weakest this year as the Delta variant of the Covid-19 menace negatively impacted the economy.

The key question is whether this tepid jobs data will be enough to stop the Federal Reserve from tapering next month? Time will tell.

By Lukman Otunuga Senior Research Analyst

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