✅ Daily Market Analysis - FRIDAY OCTOBER 6, 2023

Key events:

USA - Average Hourly Earnings (MoM) (Sep)
USA - Nonfarm Payrolls (Sep)
USA - Unemployment Rate (Sep)

US stocks faced a minor setback on Thursday, recovering from earlier session lows, as investors awaited the monthly jobs report to gain insights into potential future interest rate trends. The S&P 500 managed to maintain its position above the 200-day moving average, currently hovering around 4,206.

Although bond selling remained subdued on Friday, it may be short-lived. Tokyo's Nikkei index remained relatively stable, and currency markets followed suit, despite the persistent bond selloff's impact on the dollar.

During the Asian session, ten-year US Treasury yields remained unchanged at 4.72%. However, this comes after a five-week period of significant selloff in the bond markets, causing fluctuations in risk appetite among investors worldwide.

US10Y treasury yields daily chart

San Francisco Fed Bank President Mary Daly stated during an address at the Economic Club of New York that US monetary policy has shifted into a "restrictive" phase. Given the recent uptick in US Treasury yields, she suggested that there may not be a necessity for further interest rate hikes.

Investors are eagerly anticipating the commencement of third-quarter earnings reports later this month. S&P 500 companies are expected to reveal a 1.6% year-over-year increase in earnings for the quarter.

In terms of market performance, the Dow Jones Industrial Average dipped by 9.98 points, or 0.03%, while the S&P 500 experienced a 5.56-point decline, equivalent to 0.13%. The Nasdaq Composite also recorded a drop of 16.18 points, or 0.12%.

NASDAQ Index daily chart

S&P500 Index daily chart

DJI Index daily chart

Tesla, under the leadership of Elon Musk, has garnered attention by reducing the prices of its Model 3 and Model Y vehicles in the United States. The price cuts range from approximately 2.7% to 4.2%, as indicated on the company's website. This decision comes on the heels of a similar price reduction for its premium Model S and Model X cars, which occurred just a month ago.

Tesla's aggressive approach to price reductions in 2023 is a strategic move to address the challenges posed by a decelerating electric vehicle (EV) market and the escalating competition from both newcomers and established players. Notably, the standard Model 3 has witnessed a price decrease of approximately 17% since the beginning of the year, while the long-range variant of the Model Y experienced a reduction exceeding 26%.

Tesla stock daily chart

These price adjustments coincide with Tesla's plans to introduce a refreshed standard version of the Model 3 in the fourth quarter, which will come at a higher price point. The company recently reported third-quarter delivery figures that fell below expectations. This shortfall was attributed to production halts related to planned factory upgrades necessary for the new Model 3 version.

Despite this, the US labor market continues to demonstrate resilience, contributing to overall economic demand. This has raised the possibility of the Federal Reserve implementing further interest rate hikes before the year concludes. While many economists believe that the Fed has completed its rate hikes, it is expected to maintain a tight monetary policy for an extended period.

The Labor Department's employment report for September, highly anticipated by investors, is likely to reveal a moderate slowdown in job growth. However, it is also expected to show a decline in the unemployment rate from its recent high. Wage gains are anticipated to remain elevated, underscoring the ongoing strength of the labor market.

Some economists even suggest that the payroll numbers may surpass expectations. They point to a decrease in first-time unemployment benefit applications in September and a more favorable seasonal adjustment factor as indicators of a potentially robust report.

Despite market fluctuations, the US labor market continues to be a driving force in sustaining the economy. Third-quarter growth estimates have reached as high as a 4.9% annualized pace, well above the level that the Fed considers non-inflationary.

While the prospect of another round of bond selling could extend the dollar's winning streak, especially against the euro, the yen has displayed some resilience amid speculation of potential intervention by monetary authorities.

US Dollar Currency Index daily chart

The dollar index has recorded 12 consecutive weeks of gains, maintaining its strength. During this period, the euro has remained near an 11-month low, while the British pound has hovered close to a seven-month low.

Despite a sudden yen jump during London trading hours earlier in the week, Japanese authorities have denied intervening in currency markets. This has left traders cautious and uncertain about the potential for further market interventions or currency fluctuations.

USD/JPY daily chart

The yen is currently stable, trading at 148.5 per dollar. Gold, on the other hand, has experienced nine consecutive days of losses due to rising bond yields but is currently holding steady at $1,820 per ounce.

XAU/USD daily chart