Daily Market Outlook, November 5, 2021

Overnight Headlines

Asian equity markets were mixed overnight ahead of today’s US labour market report. Global stocks, however, are set to end the week higher, supported by positive earnings reports. Markets continued to digest yesterday’s decision by the Bank of England to leave interest rates unchanged, with the majority on the MPC feeling that there continued to be value in waiting for additional information, particularly about near-term developments in the labour market following the end of the furlough scheme.

After yesterday’s Bank of England policy decision, the focus returns to the US today with the release of the October labour market report. We had confirmation earlier this week that the Fed will start tapering its $120bn-a-month of asset purchases, initially with monthly reductions of $15bn, which suggests the tapering process could end by mid-2022. The Fed, however, seems in no great hurry to lift interest rates. That contrasts with the UK where, despite yesterday’s no rate change decision, the BoE indicated that rates will need to rise in the coming months to return inflation back to target.

For the US employment report later today, look for an increase in nonfarm payrolls of 520k, slightly above the consensus forecast for 450k. That would be an uplift from the disappointing outturns of the last two months (366k in August and 194k in September), as the number of Covid cases has fallen back. That’s supported by the separate ADP report which showed a pickup in private sector jobs growth during the month.

Also expect the unemployment rate to fall from 4.8% to 4.7%, a new low since the start of the pandemic, although it remains higher than pre-Covid. It may also underestimate the degree of labour market slack, given the fall in the labour force participation rate. Still, annual growth in hourly earnings is predicted to move up to 4.9%y/y which, in the absence of offsetting productivity gains, may lead to further price rises in the wider economy. For now, the Fed continues to see current high inflation rates as being largely transitory.

The pound fell significantly yesterday after the BoE decision and was broadly steady overnight. GBP/USD dropped below 1.35 for the first time in over a month, while GBP/EUR declined below 1.17. Brent crude fell below $81 after OPEC+ decided to increase supply.

(Hedging effect can often draw spot toward strikes pre expiry if nearby (P) Puts (C) Calls )

EUR/USD: 1.1500 (576M), 1.1540 (524M), 1.1555-60 (1.37BLN)

1.1575 (725M), 1.1600 (677M), 1.1640-50 (722M)

EUR/CHF: 1.0575 (625M), 1.0700 (600M), 1.0880 (1.3BLN)

1.0920 (1BLN)

GBP/USD: 1.3600-05 (274M). EUR/GBP: 0.8440 (1BLN)

0.8525 (710M), 0.8550-60 (1.43BLN)

AUD/USD:0.7400 (345M), 0.7415 (425M), 0.7440-50 (342M)

0.7470-75 (442M), 0.7500 (516M)

USD/CAD: 1.2375 (565M), 1.2395-1.2400 (547M)

1.2500-05 (1.32BLN), 1.2520-25 (410M)

USD/JPY: 113.70-75 (2.0BLN), 114.25 (860M), 114.50 (965M)

115.00 (916M)

EURUSD Bias: Bearish below 1.17 Bullish above

GBPUSD Bias: Bearish below 1.37 Bullish above.

USDJPY Bias: Bullish above 112.50 Bearish below

AUDUSD Bias: Bearish below 0.75 Bullish above