Markets remain on edge regarding developments in the Middle East and any Israeli retaliation. This is especially the case, one year on from the October 7 Hamas attack which sparked the latest conflict. Crude prices notched their biggest weekly rise in almost two years, with prices up more than 8% in a notably strong four-day rally. Much now depends on Israel’s response to Iran’s multiple missile attack, with an “energy war” the worst outcome for all concerned, especially the US, which is heading into an election. Any spike in oil prices will likely be seen as hurting growth more than the obvious short-term inflationary impact.
Friday’s blockbuster NFP report saw markets cross off any chance of another 50bps Fed rate cut in November. The data was hot on all fronts, blowing away topside forecasts. But economists were left scratching their heads as the figures don’t tally with virtually any other reports like the ISMs and the Fed’s own Beige Book. This week’s inflation numbers shouldn’t upset money markets too much, which are now much more in line (54bps) with the Fed’s median dot plot of two 25bps cuts this year. That compares with close to 70bps of price cuts priced in before the NFP release. After its strongest week in over two years, bullish dollar momentum still looks solid.
The US third quarter earnings season kicks off at the end of the week, with major banks and financial institutions reporting. Stocks were buoyed by the latest jobs data further confirming a Goldilocks economy. But more record highs and lofty valuations will be tested, with S&P 500 companies overall expected to have increased Q3 earnings by 5.3% from a year earlier.