Futures market plunges following decline in U.S. unemployment rate


The futures market plunged after an unexpected decline in the U.S. unemployment rate, which caused investors and experts to believe that central banks would maintain tight monetary policies.

According to the monthly job report released last week, the unemployment rate went down to 3.5 percent, with 263,000 added jobs. Analysts said the number indicated a “robust” job market but displayed a slowdown, which the Fed had already anticipated in its efforts to tame inflation.

S&P 500 futures declined 0.5 percent, while Nasdaq futures dropped 0.6 percent. In Japan, Nikkei futures traded at 26,615 compared to Friday's closing of 27,116.

Uncertainties also loom over the market following Russian missile attacks on Kyiv and several other cities across Ukraine as retaliation for the Crimea bridge attack by the Ukrainian army. Meanwhile, national holidays in South Korea and Japan meant that stock trading was thin.

The futures market indicates more than an 80 percent probability of the 75-basis-point interest rate hike by the Federal Reserve. Meanwhile, the British central bank plans to raise interest rates by 100 basis points, while the European central bank is likely to increase the rates by 75 basis points.

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"We are in the midst of the largest and most synchronized tightening of global monetary policy in more than three decades," JP Morgan head of economic research Bruce Kasman said.

“The September CPI report should show moderation in goods prices that is a likely harbinger of a broader slowing in core inflation. But the Fed will not be responsive to a whisper of inflation moderation as long as labour markets shout tightness.”

This week, investors are waiting for consumer price index (CPI) data as another inflation indicator. The headline inflation is expected to slow, close to the annual 8.1 percent. However, the price index for energy and food is predicted to accelerate by 0.2 percent to 6.5 percent.

The Fed will soon release its most recent policy meeting minutes. Analysts have predicted the minutes will “sound hawkish” as a number of Fed officials have indicated that the central bank will not ease up on its monetary policy.

Market projection

Major banks on Wall Street, including Wells Fargo and JPMorgan, have started testing corporate earnings. Analysts said that, except for the energy industry, companies' earnings per share would decline by three percent, and the margins would contract by 132 basis points.

According to the tests, there would be “smaller positive surprises” in Q3, with companies likely revising their projected earnings to Q4 this year and 2023.

The U.S. greenback’s newfound strength has pressured offshore earnings made by multinational companies. The dollar index remained stable at around 112.75. The euro traded at $0.9734, while the yen’s value per dollar was 145.34. Sterling traded at $1.1089 after the British central bank implemented a bond-buying campaign last week.

Affected by the rise, gold traded at $1,694 per ounce. Oil, on the other hand, experienced a price increase of 11 percent last week after OPEC countries agreed to reduce supply. Brent was priced at $98.04 per barrel, while U.S. crude oil was at $91.85 per barrel.