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Surprise! The US economy added more than 250’000 new nonfarm jobs last month, the unemployment rate fell to 4.1% and wages grew faster than expected both on monthly and on a yearly basis. On a yearly basis, the US workers earned 4% more on average compared to a year ago. On top, the strikes at the US ports were paused until mid January and the goods are being moved until further notice.

The US treasuries got heavily sold off on Friday, the US dollar jumped, the EURUSD slipped below 1.10, Cable fell to 1.3070 and the USDJPY rallied past the 148 level.

The US dollar is better bid at the start of this week, but the US inflation report due Thursday could temper some of this bullish momentum. The US headline inflation is expected to have further eased from 2.5% to 2.3% in September. But core inflation is still above the 3% mark.

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Global headlines were shaken yesterday by the news that Israel is considering striking Iran’s oil facilities, and that Joe Biden may let Israel do it. Oil surged.

Even though the rising oil prices should not last long (hopefully), they may have an impact on the short and medium-run inflation outlook. That, combined with strikes in US East and Gulf coasts are inflationary. The spike in energy prices and supply chain disruptions were the main responsible for the soaring global inflation after the 2020s. Of course, today’s situation is not comparable to the pandemic period, but could – maybe - get the Federal Reserve (Fed) members question their overly optimistic view on inflation, and their overly dovish stance on rates. The expectation of another jumbo rate cut is melting by the day. And the selloff in Japanese yen and the British sterling add to the positive pressure in the US dollar.

Today’s US official labour data will be very important in providing a final conclusion to the week’s so far stronger-than-expected jobs figures.

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The geopolitical situation in the Middle East gets tenser, and the Federal Reserve (Fed) doves get worried with the sight of better-than-expected jolts and ADP report announced earlier in the week. The US yields and the dollar extended recovery, stocks stagnated.

The broadly stronger US dollar, combined with a slide in the euro area inflation below the European Central Bank’s (ECB) 2% inflation target justifies a further selloff in the EURUSD, while the USDJPY sharply reversed course after the new Japanese PM said that the Japanese economy is ‘not ready yet for further rate hikes’.

In energy, crude oil failed to clear a major Fibonacci resistance as EIA data showed 3.9-mio barrel build in US inventories last week. Some voices are favouring a rise to $100pb level, but the macroeconomic challenges give little support to such a rally in oil prices – even with the messy geopolitical setup in the Middle East.

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Risk off reins.

First, the US east and gulf ports went on a strike on Tuesday, as expected. It will cause supply disruptions and increase the price pressures before November presidential elections.

Then, the geopolitical tensions in the Middle East intensified after Iran has reportedly fired about 200 missiles on Israel as response to Israeli attacks on Hezbollah in Lebanon. Israel said it will retaliate. The involvement of Iran could in fact lead to a wider and a more serious conflict across the region, and threaten oil supply. This is why, the barrel of US crude gained more than 3.50% yesterday.

Elsewhere, euro area inflation slipped below the European Central Bank’s (ECB) 2% target, while the US data gave mixed signals regarding the health of the jobs market. All eyes are on the ADP report for more clues!

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The Chinese stocks extended gains on Monday as China announced more stimulus measures and investors rushed to buy before the markets closed for national holiday today. The CSI 300 index jumped more than 8% on Monday and was up by a whopping 26% in six sessions. But the S&P500 gained barely 1% over the same period. Maybe, Powell gets worried that the Chinese measures would boost inflation, along with the potential price risks from the US port strikes due to begin today? Whatever it is, the Federal Reserve (Fed) doves were on the retreat yesterday, the euro doves gained field. All eyes are on the EZ inflation and US jobs data.

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The week kicked off with another bull run in Chinese stocks on further stimulus news. The Chinese stocks extended their rally, iron ore gained, the AUDUSD, preparing to test the 0.70 cents level as Australian stocks extend rally to fresh ATH.

Over in Europe, growth and China-sensitive European stocks are also having their share of the Chinese pie. The Stoxx 600 index closed the week at an ATH. LVMH gained 20% in just a week.

In separate news, inflation data from France and Spain came in lower than expected. More figures are to flow in between today and tomorrow to keep the EURUSD offered near the 1.12 level – even against a broadly softening US dollar. US dollar remains under pressure after last Friday’s soft PCE reads, and before this week’s jobs data.

Across the Channel, Cable consolidates a touch below the 1.34 level and the FTSE 100 is better bid. Even oil – shattered by Saudi’s decision to focus on expanding market share - seems to be boosted by the Chinese stimulus news since last Friday.

In Japan, mood is totally different since last Friday. Last week’s elections in Japan resulted in a surprise win of Shigeru Ishiba, who is known for his preference for higher interest rates.

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The S&P500 printed its 42nd record high this year yesterday on the back of a mix bag of economic and corporate news.

Due today, the Fed’s favourite gauge of inflation, the core PCE index, will determine whether the soft landing dreamers will carry the US stock rally to fresh record levels.

Elsewhere, the mix of Chinese monetary and fiscal stimulus measures continue to boost Chinese and China-related stocks. LVMH jumped 10% yesterday.

Crude oil remains under pressure on reports that Saudi Arabia will drop its price target and focus on expanding its market share.

And finally, in Europe, the soft CPI reads from France and Spain will likely set a ceiling on EURUSD near 1.12, of course, if the data from the US doesn’t come with a big surprise.

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The global economy is settling into a newfound stability and central banks can continue to cautiously cut rates, said the OECD yesterday, but warned that the major central banks should maintain their data-dependent approach and be ‘prudent’ while cutting their rates. The UK economy will do particularly fine they said, despite the sticky core inflation on the island.

Alas, the upbeat outlook from the OECD, the rising tensions in the Middle East, the 4.5-mio barrel dive in US oil inventories last week (that pushed the US oil inventories to the lowest levels in 2.5 years) and the big stimulus measures from China did little to cheer oil investors up. US crude slipped below the $70pb again. Investors are waiting for the US GDP update, expected to confirm a 3% growth in Q2.

The S&P500 and Nasdaq consolidate near ATH levels, as Micron rallies 15% on the back of strong outlook on AI demand. The US dollar reverses yesterday’s gains and the USDCHF consolidates near 0.85 before the Swiss National Bank (SNB) decision.

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The S&P500 celebrated its 41st record high yesterday on rising Federal Reserve (Fed) rate cut bets. Chinese equities extended rally as well as the People’s Bank of China (PBoC) cut its MLF rate this morning, on top of the measures announced earlier this week. Global mining stocks are shining.

Elsewhere, the US dollar weakens and the dollar’s weakness masks the gloomy fundamentals of the European economies. Gold and oil remain bid on the back of geopolitical tensions.

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