US government shutdown poised to end, GBP hit in early trading following soft jobs data

Markets pivoted on Monday around the prospect of concluding the historic 41-day US government shutdown, with resolution anticipated as early as this week. The potential breakthrough lifted risk assets, signalling investor confidence that congressional gridlock would yield to fiscal stabili

The S&P 500 climbed 1.5% and traded back above its 50-day SMA; the Nasdaq 100 added 2.2%, with technology shares leading gains of over 2.0%. Traders clearly wanted to buy the dip! European equity cash markets extended this optimism, opening in positive territory this morning.

I must admit, the rally in Gold surprised me yesterday, rising nearly 3.0%; Stocks and the USD were higher, as you would expect. Conventional wisdom suggests the precious metal might retreat on such news. Undoubtedly, the trend remains firmly to the upside for Gold, with momentum traders likely to now pyramid positions above US$4,000. As shown on the daily chart below, aside from resistance at US$4,245, I see limited technical ceilings until the all-time high of US$4,381 formed on 20 October.

Weakening UK jobs market fuels BoE rate cut bets

The September UK jobs data landed earlier this morning and showed continued labour market softness.

The unemployment rate edged up to 5.0%, slightly higher than August’s 4.8% and the 4.9% consensus. Including bonuses, wages increased by 4.8% (September [3M/YY]) – below the expected 4.9% and down from 5.0% – while wages excluding bonuses met expectations at 4.6%, down from 4.7%. Additionally, HMRC payroll figures (October) contracted by 32,000, compounded by a substantial downward revision to September's data.

With unemployment ticking higher, a fall in payroll employees, and a drop in vacancies – which fell by 9,000 to 717,000 – this will likely be enough to help seal the deal for a BoE rate cut next month. In the immediate aftermath of the jobs report, the GBP traded south versus its G10 peers, currently down 0.3% against the USD and the EUR. I was closely watching the M5 support around £0.8793 on the EUR/GBP cross (see below), but, as you can see, it missed retesting the level by a hair before resuming higher. These IQM levels often yield high-probability risk event trading opportunities. 

The data certainly helps cement rate-cut expectations; before the release, markets were pricing in 15 bps of easing at next month’s meeting (62% probability). Following the opening of market pricing this morning, as you would expect, a dovish repricing took hold with investors now discounting an 85% chance of a cut.

Aside from this morning’s data, we have a muted calendar today. Stateside, markets will also be closed today in observance of Veterans Day.