US Blowout Employment Report:
The US added 254,000 jobs in September, surpassing expectations and lowering the unemployment rate to 4.1%. This stronger-than-anticipated job growth suggests that the Federal Reserve may need to keep interest rates higher for longer to avoid inflationary pressure.
Citigroup Economic Surprise Index (CESI):
The CESI has turned positive for the first time in five months, signaling that US economic data has consistently exceeded expectations recently. The soft landing scenario is becoming real, providing much needed support for equity investors.
ISM Services PMI:
The ISM Services PMI saw a significant rise, indicating continued growth in the services sector, which may further support the Fed’s “higher for longer” rate stance. Note that prices paid component is starting to swing higher.
Middle East Escalation:
Geopolitical tensions in the Middle East have escalated with Iran firing missiles, potentially adding to market volatility, particularly in oil prices. Although oil price climbed more than 5% since the attack, investors ought to note that oil prices are still trading within a range since the Hamas surprise attack on Israel last October.
Chinese Stocks Rally:
Chinese equities continue to rally alongside US stocks, though no concrete details on China’s fiscal stimulus plan have emerged. Expectations are high. A high level announcement on Tuesday can potentially disappoint or affirm the rally. The writer continues to take the view that Xi Jinping is not targeting the stock market but the economy. The goal to rein in leverage in the economy remains unchanged despite the need to prevent growth from falling below 5%. The near vertical ascent in Chinese equities makes a lot of assumptions about the scale of the measures that would be announced.
