The biggest news of the week was that the Senate passed
a short-term extension of the debt ceiling. This extension amounts to a $480 billion raise of the debt limit into early December, keeping it in-line with the government spending stopgap bill that kicked that particular can down the road until December 3. So, while it hasn’t been solved, a default has been diverted until then.
If the biggest news of the week was the debt ceiling extension, the second biggest news must be the weak NFP numbers. The consensus was to see an addition of 500K jobs but, instead, we only saw 194K. However, unemployment dropped from 5.2% to a surprise of 4.8%. The consensus was for a drop to 5.1%. In addition, the August numbers were revised up from 235K to 364K. Overall, that gives us a worst-case scenario of a December taper. But I wouldn’t write off November just yet. Adding to that November taper possibility is inflation. If September inflation is seen as remaining elevated, it will put even more pressure on the Fed to being the taper in November. We will see what the September report says on Wednesday, October 13th
. The inflation rate most recently pulled back, from 5.4% to 5.3%, in August. The consensus is for inflation to hold steady at 5.3%. The FOMC minutes will also be released on Wednesday. Traders would do well to watch how the markets trade into these Wednesday releases.
Finally, the energy crisis has also been at the forefront of the news as well. The continued climb of oil and natural gas prices have added to the inflation fears. Oil has been on a tear since the May 2020 bottom, rallying from -40.32 to 81.00 so far, and Natural Gas is up almost 350% since its bottom, just a month later, in June 2020. The rise in oil prices will continue to support the Loonie (Canadian Dollar). But a drop in oil, especially combined with a rise in the US Dollar, should provide a great long trade as it will send the USD/CAD pair rallying. For now, we can expect that energy prices will remain supported as China’s worse energy shortage in years
forces Europe and India to compete for the limited supply. The US, for its part, is considering tapping its own reserves if needed. A well-written energy crisis explainer can be found here
for those looking to get up-to-speed with what is going on.