Forex The U.S. Dollar remains on the back foot as the U.S. September labour market report disappointed. This has strengthen the case of postponement of a Fed rate hike until 2016, and the case of more ‘risk-off’ in the markets going forward. Non-farm payrolls missed expectations by printing 142k vs. 201k estimated. The August and July numbers were also revised down significantly. The unemployment rate remained unchanged at 5.1%, however, the participation rate declined to 62.4% from 62.6% as the labour force contracted by 350,000. The Dollar traded lower against EUR, GBP, AUD, and JPY, however, by the end of the session the USD had recuperated a great deal of its losses. In particular, against JPY as stock markets rallied strongly. We find this a bit contradicting as U.S. interest rates collapsed vs. its major peers. With this in mind, our bias is for further Dollar weakness in the coming days. Key data for the U.S. and most other markets is ISM Services, which is expected to print 58 from 59 last month. The indicator is at very elevated levels and highlighting the duality of the U.S. economy. While the manufacturing sector is reaching recessionary levels, the service sector is quite strong. Given that the ISM Services is at its highest levels for some time a very ‘good’ reading will likely have limited impact on markets, while a ‘soft’ reading will have larger negative effect on the Dollar. Equity Indices The S&P 500 managed to stage an impressive rebound on Friday. The futures markets collapsed on the labour market report and at one point it looked fair to expect a break below the September low of 1871. However, the markets rebounded and rallied until the close of trading. The price action was clearly contradicting what was happening in the FX, commodity, and bond markets. One reasonable explanation is that the markets expect more QE or a rate hike pulled out as far as the end of 2016. Or that we have seen the worst for the U.S. economy. We believe it’s the former i.e. the rate hike postponed. And we also expect softer U.S. data ahead. However, the softer U.S. data is not being supported by price action, which we need to respect. For now, we expect the S&P 500 to range trade between the September high of 2022 and the low of 1870.5, until price action and macro data aligns. Commodities U.S. oil declined on the NFP outcome and then bounced back in line with stock markets. Oil will likely remain low on soft jobs figures and ISM Manufacturing published earlier last week. However, price is firmly trapped in the $43.30 – $47.70 range, and we do not expect a breakout at this stage. Gold bounced on the soft NFP, this makes sense as traders flock to gold in bad times and on a softer Dollar. However, price is stuck between the September low of $1097.70 and September high of 1156.70. Therefore, it’s too early to know if the current boost in price will result in a new trend. We await a break of this range.

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