The economy is too strong for the Fed to turn around.​ A strong start to October ended after a private payrolls report and data from the services sector reminded investors how strong some parts of the economy remain. Worsening economic data is needed to lower inflation and for the Fed to consider a slower pace of tightening. If we continue to see resilience in the services sector, the Fed may need to remain aggressive in its rate hike cycle. ​ ​

By the end of the year, but definitely not this month, the Fed will ease its hawkish stance. Inflation is still in focus and the data is not softening fast enough.

ADP/ISM Services

The private payrolls report showed that 208,000 jobs were added in September, roughly in line with the consensus estimate of 200,000.​ After several unfavorable readings in the labor data, the ISM’s manufacturing employment component declined and the JOLTS data showed a loss of more than a million jobs , Wall Street began to grow more confident that the labor market has slowed. Hiring is slowing, but the service sector appears to be holding up. The ADP report showed that the goods manufacturing sector lost 29,000 jobs, while services jobs gained 237,000. The ISM Services Employment Index rose sharply to its highest level since March.​​ ​

Traders could be disappointed if they were hoping for a sharp deterioration in hiring with the nonfarm payrolls report. The early October rally could disappear entirely if nonfarm payrolls show steady hiring and continued wage pressures.

Crypto

Wednesday’s reversal came and risk aversion took Bitcoin to the $20,000 level. A strong start to October ended and markets were quickly reminded that the Fed’s calls were once again premature.​ After the ADP employment change report and the ISM Services Index, traders were quickly reminded that the economy is not falling off a cliff and that the Fed may have to remain aggressive in its next year’s rate hike cycle.

Bitcoin fundamentals continue to support a healthy consolidation and should remain so until we see a double dose of solid hiring on Friday and much higher than expected inflation next week.​​

This article is for general information only. It is not investment advice or a decision to buy or sell securities. Opinions of the authors; not necessarily OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Trading with leverage is high risk and not suitable for everyone. You may lose all your invested funds.

With over 20 years of trading experience, Ed Moya is a Senior Market Analyst at OANDA, focusing on cross-market operational analysis, geopolitical coverage, central bank policy and market reaction to corporate news. His particular expertise lies in a wide range of asset classes including currencies, commodities, fixed income, equities and cryptocurrencies. Throughout his career, Ed has worked with some of the top forex brokerages, research groups and newsrooms on Wall Street, including Global Forex Trading, FX Solutions and Trading Advantage. He most recently worked with TradeTheNews.com, where he provided market analysis based on economic data and corporate news. Ed, who lives in New York, is a regular guest on several major financial television networks, including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most prominent news outlets, including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.

Ed Moya

Ed Moya

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