Weekly Summary: OPEC+ “Slap” and Non-Farm Payrolls

September Non-Farm payrolls report, which will be released on Friday in the United States, is extremely important to confirm if the Federal Reserve (Fed) will continue with their no-matter-what aggressive monetary tightening. A strong labour market would certainly mean a 75-basis points interest rate hike by the Fed in November.

There were serious doubts about this move early in the week after the Reserve Bank of Australia raised its interest rates by only 25 basis points following the announcement by the Bank of England that it would activate its unlimited QE program by October 15. However, these doubts were diminished after the Service PMI in the United States returned to a growth trajectory in September at 49.3 points after 43.7 points in August. U.S. located job vacancies dropped by more than one million in August, but it was neutralised by positive Non-Farm Payrolls predictions by the ADP and hawkish statements by Fed officials suggesting further steep interest rate hikes.

There is no reason to bet on a stock recovery in such circumstances and investors have rapidly closed long positions at least before the publication of the Non-Farm Payrolls data and the upcoming earnings report season. Consensus suggest that the unemployment level in the United States would remain at 3.7%, while the U.S. economy has added 250,000 new jobs outside the farming sector. Our statistical modeling suggests that Non-Farm payrolls may be more optimistic, at 250,000-268,000 in September. But this would hardly convince the Fed to pull the breaks on monetary tightening.

The S&P 500 index moved to the upside formation with targets at 3950-4050 points. But there are serious doubts the index could reach them. Thus, a downside scenario remains the primary one.

The oil market was inspired by the unexpected decision of the Organisation of Petroleum Exporters and its allies (OPEC+) to cut production by 2 million barrels per day. A resounding political “slap” by OPEC+ pushed Brent crude prices to $96 per barrel. However, the real production cuts by OPEC+ are significantly lower, around 0.4-0.6 million bpd, according to Goldman Sachs, as some oil-exporting countries like Russia, Venezuela and Iran, were forced to cut production in advance. Some African oil producers were experiencing production issues. Overall, OPEC+ countries were behind the agreed output schedule by 3.6 million bpd.

Nevertheless, the aggressive downside formation is intact suggesting long-term price targets at $50-60 per barrel of Brent crude benchmark by November.

Gold prices are still above a strong resistance area of $1680-1700 per troy ounce. But current developments suggest that gold prices are likely to return to the downside trajectory soon with the target at $1680 per ounce and further down. Additional short positions were opened at $1730 per ounce. However, elevated geopolitical risks may jeopardize this downside strategy with some upside spikes. So, more short positions are not recommended to be opened right now.

The money market is stabilising. Traders may consider some short-term positions after the release of the Non-Farm Payrolls data. Long-term signals are mixed as they suggest that GBPUSD could rise towards 1.17000 from the current 1.12000 by the end of October. On the other hand, EURUSD is signaling pressure this month. In this situation risky long positions on the GBPUSD with the target at 1.17000 and distant stop-loss order are justified. Traders must remember that these trades are valid until the end of October and should be executed at low volumes.