We’re Running Low On Gas Maverick

A much worse than expected U.S. ISM Non-Manufacturing PMI at 52.6 saw the yelling for a Federal Reserve cut this month turn into a cacophony of noise. It was despite the Markit Services PMI come in only a smidgeon lower meaning the composite PMI actually rose for September. Still, it was the main event that captured the imagination and capped of a week where it appears the trade war-induced slowdown finally arrived in America.

Wall Street had been expecting the worst and duly got its wish, with stocks selling off initially. The sell-off was short-lived though, as equity markets, ever optimistic, started pricing in an almost 100% chance of a Fed cut at the end of this month and in December. It caused equities to bounce back with all the major Wall Street indices finishing in the green.

The rally looked forced though, a meeting of hope versus reality, with equities having a running on vapours look about them. However, in this case, equities don’t have a Goose sitting in the back seat, tapping fuel gauges, which seems to magically load a few thousand pounds of jet fuel into the jet fighter.

A more adult picture of the world can be gleaned from bond markets. Insulated from the day to day noise and swings that attention deficit equity markets give us, government bond yields globally have fallen all year, trade war or not, signalling a global slowdown was on the way. Yesterday U.S. treasury yields fell and stayed down. As I have said before, there are slowdowns, and there are slowdowns. A periodic “draining of the capitalist swamp” isn’t a bad thing. A trade deal is needed to stop the drained swamp igniting into a peat fire that burns for months. Stay on target Maverick.

Attention now swings to tonights U.S. Non-Farm Payrolls where the market is expecting 145,000 jobs gain, a slight improvement over the previous month. The risk is, of course, for a substantial miss to the downside, sealing the doom-sayers unholy data trinity for the week. (the other two being the ISM’s) Even Goose tapping the fuel gauge furiously is unlikely to provide enough fuel to boost equities in that case, and we can also expect another leg down in bond yields.

Will the Fed cut at the end of the month? Markets are pricing in an almost 100% certainty, but I think the picture is foggier than that. The plethora of Fed speakers today may give us some insight. With trade talks between the U.S. and China restarting next week in Washington D.C., it would make complete sense to see if any progress is made. Forward movement would dampen the street and the Fed’s case for more rapid rate cuts. Having worked so hard to normalise interest rates at least partially, even as Europe falls into the deflationary hole with Japan, I remain adamant that they will not want to squander that hard-won advantage on one month’s weak data. An end of October cut is 50/50 at the very best with December much more likely to be in play, to the disgust of the President Trump’s social media account.


Wall Street chose rate cuts over reality overnight, using the weak ISM services data to price in Fed action this month. It propelled Wall Street to a rather laboured looking higher close. The S&P 500 rose 0.80%, the Nasdaq climbed 1.10%, and the Dow Jones rose 0.47%.

Asian is likely to take a more hard-nosed approach to the reasons behind the rally on Wall Street and not get sucked into a follow the leader situation. While we expect Asia shares to take heart from Wall Street’s comeback, regionally rallies will be more modest with China away and ahead of resuming trade talks next week.

The Reserve Bank of India has a rate decision today, so expect some fireworks each side of 1430 SGT. I would be aghast if there were anything but a rate cut given the ongoing turmoil in India’s financial sector. The question will be how much. A substantial rate cut should boost Indian shares into the week’s end.


The currency markets contented themselves watching from the sidelines overnight, no doubt happy to wait for this evening’s main event, the U.S. Non-Farm Payrolls.

The dollar fell slightly with the dollar index finishing 0.10% lower at 98.91. Both JPY and CHF benefited from some safe-haven flows with Euro holding its ground around 1.0970 but still unable to recapture the 1.1000 level as the European data prints painted an even worse picture then the U.S. ones this week.

Regional currencies will continue in the same vein today, content to let the excitement play out elsewhere. The progress of the trade talks next week will be of far more importance to regional currencies than tail-chasing equity markets.


Oil finished almost unchanged after a sell-off in both Brent crude and WTI initially. Hopes of a Fed rate cut boosting the economy and thus oil demand saw both contracts make back their losses. Brent crude finishing at $57.65 a barrel and WTI $52.35 a barrel on a spot basis.

The critical technical supports at $56.00 for Brent and $50.00 for WTI remain to uncomfortably close for comfort, however. A poor Non-Farms read could see both levels tested and a break would no doubt bring more stop-loss selling to the market. Like equities, the recovery from the initial sell-off looked more a case of hope rather than reality.

Asia will probably see some buying emerge over the session as traders hedge potential weekend geopolitical risk although the session should be quiet with China still on holiday.


Spot gold rose 0.33% to $1505.00 an ounce having tested $1520.00 earlier in the session as equities moved lower initially. Gold’s recovery has been impressive but is based on risk aversion sentiment rather than the fundamentals of gold itself. It is therefore at risk of an equally aggressive pullback should tonight’s data outperform or there is a trade breakthrough next week.

From a technical perspective, gold has support at $1495.00 and $1474.00 an ounce. It has resistance at $1520.00 and $1536.00 an ounce.

Gold should find continued, if muted support, during Asia as investors buy to hedge weekend risk.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Jeffrey Halley

Jeffrey Halley

Senior Market Analyst, Asia Pacific
With more than 30 years of FX experience – from spot/margin trading and NDFs through to currency options and futures – Jeffrey Halley is OANDA’s senior market analyst for Asia Pacific, responsible for providing timely and relevant macro analysis covering a wide range of asset classes. He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays. A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV, Channel News Asia as well as in leading print publications including the New York Times and The Wall Street Journal, among others. He was born in New Zealand and holds an MBA from the Cass Business School.
Jeffrey Halley
Jeffrey Halley

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