The global economy is likely to continue to stagnate in the face of the slowing growth of the American and Chinese economies. Economic leaders continue to experience significant problems amid the coronavirus pandemic, falling demand, and global financial bubbles, primarily in the US, which were largely inflated during the acute phase of the pandemic.
At the end of the previous week, there was a publication of extremely disappointing data on US employment, which showed their dependence again on two of the most important factors – measures of financial support for the country's population, which stimulate social parasitism and the coronavirus pandemic. Based on the Department of Labor report, the US economy received 194,000 new jobs in September against the forecast of 500,000 and the revision of the August data upward to 366,000. At the same time, the unemployment rate declined from 5.2% to 4.8% amid the forecasted decline to 5.1 %. The figures presented fully reflect the figures presented above.
Cn the situation in the US labor market change dramatically?
We believe not. The main reason still lies in the so-called "helicopter money" scattered by US President Biden's administration. The desire to help ordinary Americans with benefits amid the pandemic, which was a consequence of the desire of the Democrats to defeat Trump in the election, led to a strong increase in demand for goods and services with inappropriate supply from the business. This led to a sharp increase in inflation to a 13-year level of 5.4%, which is forcing the Fed to reconsider its view of monetary policy. In fact, we can say that America has fallen into a kind of trap, from which it will not be easy for it to get out without significant economic and social losses.
It was pointed out repeatedly that measures to support the population stimulate inflation, but the authorities cannot stop doing this for political reasons, as this will cause a social explosion. So, given this current condition, we can say confidently that the United States, and then, for the most part, the whole world, expect extremely sad times with the decline of America's economic and political influence due to the elimination of the dollar's function as the world's reserve currency. This will definitely force investors to reconsider their views on the attractiveness of certain assets.
On another note, United States will release important data on inflation this Wednesday. It is assumed that both the general consumer inflation and the core inflation will maintain the same growth rates in annual terms. At the same time, the September value of core inflation will only grow. If the data does not rise and approximately shows the expected figures, then this may have a negative influence on the markets. If so, the United States will continue to be in conditions of high inflation and a stagnating labor market, and all this on the expectation of a slowdown in economic growth.
Observing everything that is happening, we believe that the currency markets will expect continued sales in the public debt market in the near future, with a corresponding growth in bond yields, which is extremely negative in the conditions of the crisis in the country, high volatility in the stock market, and an increase in demand for real assets, primarily commodities and the lateral dynamics of the dollar rate in the financial markets.
Forecast of the day:
The EUR/USD pair is trading above the level of 1.1565. America's weak employment data and the prospects for continued high inflation are pushing the pair up so far, but in general, it is likely to consolidate in a sideways range. We believe that the pair can recover to the level of 1.1600 before declining to 1.1530.
The USD/CAD pair is trading above the level of 1.2420 level. A decline below this level amid a rally in the crude oil market could lead to a further fall to the level of 1.2250.