US stocks were weaker on Friday, with S&P down 2.8% as robust US payrolls keep pressure on the Fed. US10yr yields closed 6bps to 3.88%, up about the same amount over the week. Oil edged closer to USD100/bbl, up another 4.3% to USD98.45.

In the wake of the super strong US jobs report, equities slid fast. It appears like the end of a bruising week looks set to extend for at least another round, with sentiment among active investors remaining very bearish.

Everyone on the street knows the Fed is watching the labour market like a “Hawk.” With the unemployment rate falling, it likely will not convince anyone that the current pace of monetary policy tightening is working. Hence the FOMC reaction function might move from “inflation, inflation, inflation” to “inflation, labour markets, inflation,” especially with the US economy appearing less rates sensitive than others.

With the labour market still seemingly humming, for now, Fed officials and market participants alike will be focused on one thing, the inflation data – in particular, Thursday’s September CPI release.

With gas prices down almost 7% from August to September, energy should drag on the headline CPI print; however, core CPI will draw the most focus especially given last month’s upside surprise.


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But with oil prices rising again after the OPEC production cut, it certainly complicates any thought of “peak inflation.”

On a geopolitical scale, tensions between Russia and the West are peaking again, with the bitter dispute behind Nord Stream’s pipeline leak exacerbating. And further sanctions are being weighed following the formal annexations of regions in Ukraine.


Oil bounced higher on Friday after robust US labour data suggested that the world’s largest oil consumer economy shows few signs of buckling.

However, prices are trading off the highs in early Asia trade as the oil complex expects a policy tag team from the Biden administration and the Fed.

Whitehouse intervention will come in the form of Strategic Petroleum Reserve releases which are currently getting offered to eight companies, the DoE said on Friday.

The Fed will try to cool gasoline demand via higher for longer interest rates specifically designed to slow the US economy.

OPEC’s extraordinary production cut strongly supports prices and provides a solid backstop for traders to use on dips. More critical is the bullish signal OPEC+ sends here by responding to short-term market dynamics by pushing prices higher despite the view that demand growth will outpace supply growth. So, while the thoughts to policy intervention could temper the rise, with OPEC seemingly willing to adjust to any lower price shift, US policy manoeuvres are unlikely to curb a gradual price increase until a full-blown US recession hits.

The temptation of the long China trade could start to build ahead of October 16, when the 20th National Congress of the Chinese Communist Party is set to open.


All roads lead to USD higher. The Federal Reserve wants a slowdown in the labour force, which is not showing. Friday’s number should green-light another 75bp-50bp path into year-end, and the Fed will not pivot at all from the hawkish commentary. Other global central banks may be starting to shift, but the US is not, so for the time being, USD higher still is the path of least resistance.

Unrelenting USD strength has exacerbated “dialling for dollars” across all FX markets.

Asia FX 

And after the release of China and Korea’s FX reserve numbers this week, the common theme of FX reserve reduction across G10 and EM. Continuing this broad reduction could spell danger to central banks whose USD reserve war chests are depleting yet still wish to keep a lid on some recent volatile moves.

Given the ASEAN basket beta to CNH, higher oil prices, and the continued sensitivity to front-end US rates, look for USD/ASIA to stay bid.

Ahead of Party Congress beginning on October 16, China authorities may get more initiative-taking in managing the weakness of the RMB, leading to smaller moves and lower volatility. But widening US-China rate differentials will likely incentivize more outflow by foreign corporates and should keep the currency under pressure.

The Malaysian Ringgit is opening a bit softer this morning on broader US dollar strength supported by higher US yield. Still, the opening weakness is likely tempered by higher energy prices.

Overall, I expect a rangy-type market across the entire FX complex ahead of US CPI on Thursday.

Originally published by Stephen Innes, Managing Partner, SPI ASSET MANAGEMENT