US Equities continued their record run on the back of non-farm payrolls, which were the best in six months, and Fed Powell’s comments suggested that the US economy was on a firm footing. The latest economic reads indicated that the Fed is on target to manage a soft landing. The actual non-farm payroll data showed a gain of 254,000, far higher than the forecasted 140,000, and the unemployment rate sunk to 4.1%. This was well above the monthly average of 203k and a significant contrast to last month’s soft data, which egged the Fed into an aggressive rate cut of 50bpts. US average hourly earnings also increased over the month.  Given the employment surge and wage lift, we feel the FED will ease off, delivering more rate cuts this year.  Further, according to the FAO, World Food prices surged over September, increasing by 3%. This was the most significant MoM increase since March 2022 and the highest level since July 2023. Unfavourable weather conditions in some of the world’s food bowls contributed to the lift. Tensions in the Middle East have erupted again, with Israeli IDF attacks on Beirut. As a result, Oil prices have firmed, reaching levels not seen since August this year.  This week, we see essential Core CPI data in the US, which should support the recent moves by the Fed to ease monetary policy. 

But first, let’s take a deeper dive into recent employment data. U.S. equities have continued their record-breaking run, largely driven by the latest non-farm payroll data, which delivered the best results in six months. The strength of the labour market has reassured investors that the U.S. economy is on solid footing despite the challenges posed by inflation and global economic uncertainties. The recent rally in equity markets has been bolstered by comments from Federal Reserve Chairman Jerome Powell, who suggested that the U.S. economy is on track for a “soft landing”—a scenario where inflation is tamed without triggering a recession.

The October non-farm payroll report showed a much stronger-than-expected gain of 254,000 jobs, far exceeding the forecasted increase of 140,000. This is much higher than an upwardly revised 159K in August. It is the most robust job growth in six months and higher than the average monthly gain of 203K over the prior 12 months. Employment continued to trend up in food services and drinking places (69K); health care (45K); government (31K), both local (16K) and state (13K); social assistance (27K), primarily in individual and family services (21K); and construction (25K). This impressive figure marks a significant rebound from the previous month’s weaker data, which had caused some anxiety among investors and prompted the Federal Reserve to enact an aggressive rate cut of 50 basis points (bpts). 

For policymakers at the Federal Reserve, this labour market performance serves as a key indicator that their monetary policies are working to stabilise the economy. However, the concern of an escalation in tensions in the Middle East may dampen enthusiasm for an expanding economy and lift oil prices. Which potential for an uptick in price pressures should not be discounted. 

Rising tensions in the Middle East are adding fresh uncertainties for the global economy, even as policymakers begin to commend themselves for navigating through a period of high inflation without triggering a recession. Israel, which has been constantly bombing Gaza for almost a year, has sent its troops into southern Lebanon after two weeks of intense airstrikes, escalating the conflict in the Middle East. Brent crude futures are currently around $75 a barrel, well below their $84 level at the time of Hamas' Oct. 7 strike on Israel nearly a year ago and far off the $130 highs reached after Russia's invasion of Ukraine in February 2022.

The economic impacts of an all-out war that leads to wider attacks on energy infrastructure throughout the Middle East and Gulf regions, plus further disruptions to trade routes through the Red Sea, would be more of a concern. The global economy remains exposed to rising oil prices. A 10% rise in prices would be needed to push up inflation by just 0.1 percentage point. However, combined with other price pressures, it could lead to a more sustained increase in inflation. This week, inflation data from the US will be an important indicator to follow.

It will be a key week in the United States with the release of September’s CPI report, the FOMC Meeting Minutes and the start of earnings season at the forefront. Investors will also pay close attention to speeches by several Federal Reserve officials, along with data on producer prices, Michigan consumer sentiment, and foreign trade. Globally, inflation rates will be released for Brazil, Mexico, and Russia. In Europe, Germany will report on factory orders, industrial production, foreign trade, and delayed retail sales, while the Euro Area will provide retail sales data. The UK will reveal its GDP growth and factory activity for August. Canada's unemployment rate and foreign trade data are also in focus. Meanwhile, Australia will release NAB business confidence and Westpac Consumer Confidence reports, and Japan will update the Reuters Tankan Index. Key interest rate decisions are expected from South Korea, India, and New Zealand.

On the position …, we have reduced all … positions in equities, but we are holding off on … position sizes further. An upward move in oil may see a rethink on further rate cuts in the US; hence, equity prices may soften. We closed the AUD position with good profits after just falling … of our target of … We … Silver’s position as it failed to move on and are currently … USD… Oil continues to trade well for us, as does wheat.

Trade Focus:

Oil

Fundamentals:

We have been ... Oil for some time. Increased turmoil in the Middle East and the new Hurricane Milton in the Gulf strengthening to Cat 5 has seen a resurgence in support for the commodity. In the Middle East, the IDF is now fighting on two fronts, and there is a real concern the conflict will escalate …

Technical Analysis:

Technically, we moved into crude a few weeks back, citing solid support around US… At this stage, momentum indicators were on their lows. … price action has resulted, and we need to see a break of US… in order realize higher prices. US… is near term resistance. 

Support              …

Resistance         …

Momentum        …