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What Could Move Markets this First Week of Q4

PART:
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Part 8
What Could Move Markets this First Week of Q4 PART 8 OF 8

Will the September Employment Data Change the Fed’s Outlook?

Will the December rate hike odds change after non-farm data?

The most important US nonfarm-payrolls data is scheduled to be reported on Friday, October 6. Consensus expectations are for an addition of 93,000 jobs in September. This is a sharp decline compared to the previous reading of 156,000 jobs in August as the impact from hurricanes Harvey and Irma are likely to have limited the number of new jobs being created in the affected regions.

As per the CME Fed Watch Tool, the chances for a rate hike in December stand at 71.7%. This number is likely to change based on the incoming US economic data. Will the lower jobs number in September have any impact on the US Fed’s outlook raise rates in December?

Will the September Employment Data Change the Fed’s Outlook?

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Why September non-farm payrolls data might not impact the markets

Financial markets and the US Fed are already expecting fewer jobs to be added in September, as they’ve factored in the losses from hurricanes Harvey and Irma. Both bond (BND) markets and the US dollar (UUP) might not even react to the negative jobs report because the hope for a bounce-back in economic activity from rebuilding efforts in the coming months is likely to contain any sharp declines.

Conclusion

In the first week of the fourth quarter, the bond (AGG) and currency markets are likely to be dominated by US economic data and divergent monetary policy. For equity markets in the United States (SPY), the third-quarter results and the optimism from tax reforms could keep the positive momentum going.

Based on empirical evidence, the last quarter of every year has been the best quarter in most of recent history. Major indexes in the United States (QQQ) have appreciated by an average of 12% in the first three quarters this year. If this Q4 observation repeats itself, there could be new peaks for most of these indexes. Will that happen? No one can answer with certainty, as past performance is no guarantee for the future, and it depends on how investors react to economic outcomes that are difficult to predict.

We’ll have to wait and see how different expectations from the Fed, the US economy, and the Trump admiration converge to shape the outlook for the financial markets.

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