Market participants price in a higher Federal Fund Rate, which economists believe will rise to 5.50%-5.75%. According to the CME Group, there is a 31% chance the Federal Reserve will hike in November and a 46% chance of a hike in December. More than 50% of economists within the CME believe the Federal Reserve will hike before the end of the year. Market participants amended their portfolios after releasing the US JOLTS Job Opening data. Job Openings rose to a 3-month high and exceeded expectations for the first time since May 2023.
The JOLTS Job Opening data was expected to read 8.81 million for August but read 9.61 million. A more robust employment sector gives the Fed more breathing space to consider another interest rate hike. Recently, the chairman of the Cleveland Fed Branch, Mrs. Mester, admitted the possibility of another hike, but this decision will depend on the current state of the American economy. Federal Reserve Governor Michelle Bowman will also support an increase in the cost of borrowing at the regulator's next meeting if the inflation decline turns out to be too slow.
All members of the Federal Open Market Committee advise a hike is possible, but the deciding factor will likely be if inflation declines this month. Without inflation decline, a hike becomes more feasible, which can harm the stock market and commodities. On the other hand, a hike is likely to support bond yields, notably the US Dollar. This morning, The US Dollar Index has risen by a further 0.17% and is now trading at 107.18, considerably higher than the 106.25 open price from Monday.
XAU/USD
The price of Gold is now declining for a third consecutive day and for a second successive week. The price is trading at its lowest since the first week of March 2023 after dropping more than 6% in 15 days. Technical indicators continue to provide a clear indication of the commodity's decline. However, analysts are also pointing to the fact the price of the commodity is trading at a 30-week low and a previous support level. Therefore, traders looking to sell further should be cautious of corrections.
The standard deviation continues to form at a lower price, showing the dominance of sellers within the current market. In addition, the price continues to trade below the Volume-Weighted Average Price. Crossovers are pointing downwards, the price is trading below the regression channel, and oscillators are trading below the neutral zone, indicating a decline. However, if a retracement is to form, the standard deviation suggests the retracement may rise to $1843.99, while price action signals $1857.46. If the price declines below $1816.44, further sell signals will materialise.
XAU/USD 1-Hour Chart on October 4th
Traders should also continue to monitor bond yields, economic events and the current crisis in the US Capitol. Kevin McCarthy becomes the first ever US House Speaker to be ousted, and economists advise the development may increase the probability of a US government shutdown. A US shutdown may support the price of Gold as US bonds and the US Dollar become less attractive to national and global investors and funds. This is something. Gold investors will continue to monitor. A negative factor for Gold is the current rise in the price of the US Dollar and bond yields.
The 30-year US Bond yields have risen above 5% for the first time since 2007, applying immense pressure on Gold and other assets such as the global stock market. The US 10-year Treasury yields have risen to 4.852%, up 0.05% today. If the price of bond yields continues to increase, pressure can continue to mount on the price of Gold, mainly if the Dollar is also rising. Today’s economic events, including the ADP Payroll and ISM Services PMI, can assist in determining if Gold will be pressured. If the two releases read higher than expectations, the chances of interest rate hikes rise and will pressure Gold. As a result, Gold potentially may decline further.
Dow Jones
The Dow Jones has been harshly hit by an apparent risk-off sentiment amongst investors and shareholders. The may drivers of the selloff are higher bond yields, an expensive Dollar and lingering political instability. Investors also should note that when analysing order flow from the CME exchange, the daily volume of orders has risen consecutively for five days, and yesterday was at its highest level over the past month. When analysing sell orders vs buy orders during this morning’s Asian session, sell orders currently outnumber buy orders.
The JOLTS of Job Openings does signal a resilient economy and employment sector, which technically is positive for consumer demand and the stock market. However, investors are purely focused on interest rates and the results point towards a hike. Therefore, the Dow Jones significantly declined after the announcement. The price fell by 1.24% throughout the day and continues to decline this morning. If today's decline is finalised, it will be the index’s fourth consecutive decline.
Looking at the Dow’s components, only 8 of the 30 stocks rose in value throughout the day, while 22 stocks declined. We note that these stocks' price increases were minimal compared to the underperforming stocks within the index. The best-performing stock was Verizon Communications, which rose 0.69%. At the same time, the three worst-performing stocks were Goldman Sachs, American Express and Home Depot. Goldman Sachs declined by 3.89% and was particularly harmful to the Dow Jones as the stock holds the third-highest weight within the index.
Dow Jones 15-Minute Chart on October 4th
Summary:
- The global stock market declines due to high bond yields and a resilient employment sector. The Dow Jones fell by 1.24% throughout the day and continues to decline this morning.
- Looking at the Dow’s components, only 8 of 30 stocks rose in value throughout the day, while 22 stocks declined.
- Goldman Sachs declined by 3.89% and was particularly harmful to the Dow Jones. The stock holds the third-highest weight within the index.
- Technical analysis indicates Gold will continue its downward trend. However, technical analysts voice caution as Gold reaches previous support levels.
- Kevin McCarthy, the House Speaker, is ousted, and economists advise this may increase the probability of a US government shutdown.