By Naeem Aslam
US and European stock futures are trading higher due to positive sentiment from Asia, with stock indices on track to record solid gains for another month.
However, as October is one of the most volatile months, smart money is bracing itself for significant volatility. If the Fed doesn’t deliver what the market is anticipating, the waves of volatility will only become more intense.
With the release of one of the most important economic readings, the US NFP, later this week, traders will be on high alert, setting the trading tone for October.
Sentiment
The optimism from Asia, where stock indices have celebrated strong signs of life in the Chinese manufacturing data, is positively impacting the trading session in Europe and on US futures.
China plays a significant role in the global economy, and traders have been eagerly awaiting improvements in data.
It appears that the PBOC’s persistent efforts are bearing fruit. As long as the Chinese economic data continues to surpass expectations, we can expect an increase in economic sentiment that will lift the spirits of traders worldwide.
Stock Market Performance
The excitement around the Fed cutting interest rates and delivering a bigger package than the market expects has put the bulls in a strong position, and they have taken full advantage of this.
The performance of the US stock indices provides evidence of this. All three major stock indices are on track to finish the month in positive territory. We expect the Dow Jones index to close the month with a gain of over 1.8%, and the S&P 500 to see gains of 1.6%.
The intriguing aspect lies not only in the performance of these major stock indices for this month, but also in their quarterly performance. The jumbo size interest rate cut and expectations of further similar size interest rate cuts have pushed the S&P 500 up by 5.1%, while the year-to-date gains are steering over gains of 20%.
US 30 Chart by XTB
Economic Data
Regarding US economic data, traders remain extremely concerned about the potential of a hard landing, as the data continues to challenge their confidence.
For instance, the consumer expenditure price index from last week, which printed the lowest number and resembled the peak seen during Covid times, raises concerns about the level of stress among consumers. However, this does not imply that the situation is deteriorating, as traders have been closely monitoring the US jobs data, which is one of the most important economic data sets.
The US weekly jobless claims numbers from last week were not particularly low. The US job number has improved, making this week’s NFP non-farm payrolls the most crucial economic data traders should monitor.
Gold Prices
The precious metal is simply on fire recording new ultra-new highs every month.
Traders are highly excited as September draws to a close, given that the future path of least resistance remains strongly skewed to the upside. They anticipate further positive developments from the Fed this week, with the US NFP data, the most significant economic news release this week, providing crucial insights into the size of the next interest rate.
Traders have braced themselves for another rate cut by the Fed, anticipating that such a move would weaken the dollar index, which would significantly boost gold prices.
Gold is expected to reach $3,000 this year, and the main tailwind for gold prices is going to come from the Fed’s monetary policy.
Naeem Aslam is Chief Investment Officer at Zaye Capital Markets.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Zaye Capital Markets.