Global stocks and the dollar rose despite the decline in US interest rate hike bets

Stock markets started the week on a positive note, Monday, while the dollar continued its gains against the euro, despite the decline in investor bets on the Federal Reserve raising interest rates in October, with continued concerns about inflation and the rise in US bond yields.

Global stocks rose at the beginning of the week's trading, after weak US jobs data reinforced expectations that the Federal Reserve would refrain from raising interest rates this month, while the dollar continued to rise, supported by a rise in US Treasury bond yields and a decline in the euro.

The probability of raising US interest rates in October fell to less than 20 percent, compared to about 64 percent a week ago, according to the CME’s “Feed Watch” tool. However, traders still expect a rate hike in December.

Data released last week showed that job growth in the United States slowed more than expected during September, along with a sharp reduction in non-farm payrolls data for the previous two months, which reinforced the belief that a new rate hike in October has become less likely.

Jose Torres, chief economist at Interactive Brokers, said that the job data revisions indicate that the US economy has lost jobs in two out of the nine months of the year, and that the risks of further losses in the labor market limit the Federal Reserve’s ability to continue raising interest rates.

The decline in expectations for a rate hike pushed the Japanese Nikkei index to rise 2.5 percent, while the broader MSCI index of shares in the Asia-Pacific region excluding Japan rose 0.9 percent.

Nasdaq futures also rose 0.17 percent, while Standard & Poor's 500 contracts stabilized, Euro Stoxx 50 contracts rose about 0.3 percent, and Financial Times 100 contracts rose about 0.4 percent.

The dollar continues to rise

The dollar rose (Monday), supported by US Treasury bond yields remaining at high levels, in addition to the decline of the euro, which reached its lowest level in 17 months.

The euro fell 0.6 percent to $1.1185, affected by financial concerns in France.

Jane Foley, head of foreign exchange strategy at Rabobank, said that the widening spread between French and German government bond yields raised concerns about the pressures being transmitted to other asset markets in the euro zone, and increased the possibility of the single currency being exposed to pressure from outflows.

She added that these concerns come in addition to declining European gas stocks, rising energy prices, increasing competition from China, the weakness of the German Chancellor's position, and the risks of hybrid attacks from Russia.

The dollar rose against the yen by 0.12 percent to 158.01 yen, while the British pound fell by 0.25 percent to $1.3205.

In the bond market, ten-year US Treasury bond yields fell slightly to 5.2579 percent, while two-year bond yields reached 4.8059 percent.

Bond yields in major economies remain near multi-year highs, with bond prices under pressure from deteriorating public finances, increased debt issuance, and rising energy costs.

In commodities, oil prices fell with an increase in crude exports from the Middle East and the G7 announced the release of oil stocks, which boosted supplies and eased the impact of fears that more energy facilities in the Gulf would be damaged.

Brent crude fell 0.7 percent to $101.52 a barrel, while US crude fell more than 1 percent to $90.11.

Spot gold was almost steady at $4,143.82 an ounce.

In Brazil, markets are heading towards strong movements after the results of the first round of the presidential elections showed the lead of Senator Flavio Bolsonaro, who will face President Luiz Inacio Lula da Silva in the run-off.

The contraction of the non-oil private sector in Egypt deepened during September, with production and new orders declining at a faster pace, under the pressure of inflation and geopolitical turmoil, according to a Standard & Poor’s Global survey issued on Monday.

The Purchasing Managers' Index for the non-oil private sector in Egypt fell to 47.2 points in September, from 49.6 points in August, falling further below the level of 50 points that separates growth from contraction, according to the Standard & Poor's Global survey.

The survey showed an acceleration in the pace of decline in production and new orders during September, with companies reporting deteriorating market conditions, continued geopolitical turmoil, and rising inflationary pressures.

Export sales also declined, albeit at a marginal pace that was, on par with other periods, the slowest in a series of continuous declines for the seventh month in a row.

On the other hand, the level of employment rose for the second month in a row, recording the first consecutive increase in the number of workers in more than a year. However, the pace of employment growth slowed compared to August and remained limited.

The survey showed product price inflation declined slightly from its level in August, but remained high and significantly different from the average historical trend, while input cost inflation rose to the highest level in three months.

Despite weak activity and orders, companies remained optimistic about improved production over the next 12 months.

David Owen, chief economist at Standard & Poor's Global Market Intelligence, said that these indicators show that Egyptian companies remain optimistic about the future despite the economic challenges they face.

The decline in the index to 47.2 points reflects renewed pressure on the non-oil private sector, after it had approached the level of stability in August, with the continued impact of rising prices and market turmoil on demand and activity.

Average weekly oil shipments from the Middle East, excluding Iran, for the first time since the start of the American and Israeli attack on Iran at the end of February, exceeded the pre-war level of about 18 million barrels per day, according to Kpler data.

The data showed that crude oil exports from the region returned to pre-war levels during September, with at least 16.5 million barrels per day leaving the region, excluding Iran.

Kpler said that about 40 percent of these flows now bypass the Strait of Hormuz, while oil tankers are being changed at sea for a large portion of the shipments that cross the Strait, noting that most of the alternative flows pass through pipelines in Saudi Arabia and the Emirates.

The data also includes shipments that pass through the Red Sea, which has become an increasingly important route to bypass restrictions that Iran is trying to impose on navigation in the Strait of Hormuz, through which before the war about a fifth of global oil supplies passed.

Although Iran still asserts its control over the strait, and ships crossing it without its approval risk being attacked, oil flows have begun to recover with increased use of alternative routes and operating them near their maximum capacity.

Alternative paths

Saudi Arabia benefits in particular from the restart of the “East-West” pipeline, which transports oil from the main fields in the east of the Kingdom to the Yanbu station on the Red Sea, allowing it to bypass the Strait of Hormuz.

The line was suspended on September 11 after it was subjected to strikes launched from Iraq, before it resumed operations on September 22, according to Amina Bakr, an analyst at Kpler.

The UAE can also bypass the strait via the pipeline that transports production from Abu Dhabi fields to Fujairah, located outside the strait on the Gulf of Oman.

However, analysts stressed that the recovery of exports does not mean that the oil market has returned to normal, in light of the continuing turmoil in navigation and Iran remaining deprived of a large portion of its exports due to the American counter-blockade on its ports.

In the markets, Brent crude for December delivery fell 0.79 percent to $101.44 a barrel, by 03:10 GMT on Monday, while West Texas Intermediate crude for November delivery fell 1.20 percent to $90.02.