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Midweek Update: Key Developments and Market Insights [2nd October 2024]

 Mixed Signals in US Economy as Markets Await Friday’s Job Data 


As markets await Friday's US nonfarm payrolls and unemployment rate data, recent economic reports offer mixed signals and market expectations continue to reflect uncertainty. 


Yesterday’s manufacturing data revealed continued contraction in the sector, weak orders, and declining employment. The Purchasing Managers' Index (PMI) came in at 47.2, falling short of expectations and indicating that the US manufacturing sector contracted for the sixth consecutive month in September.  


The manufacturing employment index also dropped to 43.9 from the previous 46, missing market forecasts, which had predicted a modest rise to 47. On the other hand, weakening domestic and external demand has provided some relief to input price pressures. The prices paid index recorded its sharpest decline since May 2023, signalling the first cost decrease of the year. 


Timothy Fiore, chair of the ISM’s Manufacturing Business Survey Committee, noted that businesses remain reluctant to invest in capital and inventory due to monetary policy and the uncertainty surrounding upcoming elections. He also highlighted the potential impact of production disruptions caused by Hurricane Helene and ongoing strikes at multiple US ports over the past two weeks on October survey results. 


Additionally, the Job Openings report released yesterday added to the mixed signals, reaching a three-month high. Job openings in August rose to 8 million from the revised figure of 7.7 million in July, exceeding economists' expectations of 7.65 million.  


The report showed that while layoff rates remained relatively unchanged, the hiring rate fell to 3.3%, its lowest since 2013, excluding the pandemic period. Furthermore, the number of job openings per unemployed worker, a key indicator tracked by the Fed, remained near a three-year low at 1.1. 


While layoffs haven’t increased significantly, employers appear to be slowing down new hires. The voluntary quit rate fell to 1.9%, its lowest level since June 2020, suggesting that the US workforce is less confident about finding new job opportunities. 

 

Meanwhile, some economists are voicing concerns about the rising level of household debt in the US, raising doubts about the soft-landing scenario. As of June, consumer loans that are 30 days or more overdue have returned to their highest levels since the 2010 recession. American consumers have depleted much of their pandemic-era savings and are increasingly relying on debt to maintain spending habits. However, the recent cooling of the labor market and slowing wage growth are heightening the risk of defaults, further fueling concerns about the US economy. 


Despite ongoing concerns about the labour market, expectations for a November rate cut by the Federal Reserve have shifted to 25 basis points after Fed Chair Jerome Powell remarked on Tuesday that rates would decrease “over time.” Traders now price in a 36% chance of a 50-basis-point cut, while the likelihood of a 25-basis-point cut has climbed to 63%, a reversal from the previous week. However, markets may remain on edge ahead of Friday’s employment data release. 

 


Middle East Tensions Support Gold as Fed Rate Cut Bets Weaken Momentum

 

Expectations for gradual Fed rate cuts have slowed the upward momentum in gold, while escalating tensions in the Middle East are supporting safe-haven demand and limiting the downside.  


Following Iran's missile attacks on Israel and Israel’s vow to retaliate, gold prices surged toward $2,660 but eased slightly after the initial reaction subsided. Markets may prefer to watch geopolitical developments and upcoming US data before committing to a new direction in gold. 

 


Oil Jumps on Middle East Conflict Fears, Supply Risks Under Scrutiny 


Oil, which had been in a downtrend due to declining global demand and excess supply, spiked sharply amid fears that rising tensions in the Middle East could escalate into a regional war. Economists note that the potential for Israel to retaliate by striking Iranian oil facilities or for Tehran to close the Strait of Hormuz has yet to be priced in. However, if such supply-disrupting scenarios do not occur, the market response may be short-lived, with possible pullbacks in oil prices. 

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