October 11, 2021 8:00 AM
 — 
3
 min

Weak labor market figures increase the likelihood of continued soft monetary policy

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Last week, the S&P 500 Index added 0.8%, while the Nasdaq 100 remained at the levels of the previous week (+ 0.2%). Throughout the week, American indices have shown steady dynamics, however, on Friday, after the publication of macroeconomic statistics on the labor market for September, the indicators turned around and closed at the end of the day in a slight minus. The number of jobs in the US economy in September increased by 194 thousand, at the lowest rate since the beginning of the year. However, unemployment fell to its lowest level since March 2020 - 4.8%, up from 5.2% in August. The market consensus assumed the growth of the first indicator by 500 thousand and a decrease in unemployment to 5.1%. The slow pace of job growth suggests that the economic recovery is uneven. This, in turn, reinforces expectations that the Federal Reserve may leave stimulus measures for a longer period than anticipated. Recall that the recovery of the labor market is a key variable that will determine further monetary policy in the country.




S&P 500
4,365(-0.39%)

WTI СRUDE
81,57(-1.76%)

10Y UST
1,605(+0.00%)

BITCOIN
$56,415(+2.57%)

During the week, there was positive news that supported the market. First, Senate Majority Leader Chuck Schumer announced that Republican and Democratic representatives in the Senate have reached an agreement to increase the national debt ceiling by $ 480 billion, which will allow the Treasury Department to continue funding government spending until early December. Secondly, US President Joe Biden announced the need to urgently raise the government debt ceiling during a meeting at the White House with representatives of large banks and companies. US Treasury Secretary Janet Yellen has repeatedly warned congressmen that her department may run out of funds in mid-October if Congress does not increase the borrowing limit. Third, the news that Biden and Chinese President Xi Jinping are likely to hold virtual working negotiations by the end of this year also had a positive impact on investor sentiment on Thursday. The latest news provided significant support for Chinese tech stocks. Thus, the Invesco China Technology ETF rose more than 5% over the week, while the KraneShares CSI China Internet ETF added more than 8%.

This week begins the corporate reporting season for the 3rd quarter. Traditionally, representatives of the financial sector are the first to publish their results. So, we expect to see the reporting of JPMorgan Chase (JPM), U.S. Bancorp (USB), Bank of America Corporation (BAC), Goldman Sachs Group (GS), Morgan Stanley (MS), Wells Fargo & Company (WFC) and BlackRock (BLK). Investors will be waiting with particular attention on Wednesday, namely the data on inflation in the US. CPI is the second indicator on a par with the labor market, followed by the Fed. Improved consumer market conditions could support the stock market as weak labor market data should slow down expectations of monetary tightening. On the contrary, weak data, much worse than the consensus, may induce the Fed to act more aggressively, which is negative for stock indicators. Inflation remained high in July and August, but the data was below consensus, which cheered the markets. The minutes of the September Fed meeting will also be published on Wednesday. September retail sales statistics will be released on Friday.

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