Markets Rebound on US & Europe Developments

The market welcomed a very busy first week of October, with the widely-followed US Non-Farm Payroll data highlighting the week with renewed hope for the global economy.

The week was news-packed as expected. Aside from the regular economic data releases, several central banks made rate announcements and policy statements. Australia's RBA slashed its cash rate by 25 basis points to 3.25 percent, while BOJ, BOE, and ECB kept their rates steady at 0.10 percent, 0.50 percent, and 0.75 percent, respectively. BOJ cut their economic assessment and announced nothing new in terms of monetary policy. In a press conference following the ECB rate decision, Mario Draghi reassured the market on Thursday that the ECB is prepared to purchase bonds of troubled Eurozone nations once necessary conditions are met.

The week ended with a surprising drop in the September US unemployment rate, falling below the 8 percent mark for the first time since February 2009. US jobless rate declined to 7.8 percent, while 114,000 jobs were reportedly added in the labor market.

Meanwhile, neighboring Canada's September employment data reportedly increased more than five times that of expectations. According to Statistics Canada’s labor force increased by 52,100 in September, following a decent gain of 34,300 last August.

Stocks, Bonds, and Commodities

Market developments on Thursday and Friday dominated the bond and stock markets this week. German bonds and Spanish 10-year yields fell on Draghi's comments. Canadian government bonds slid for the first time in three weeks, following the better-than-expected employment report. Asia, Europe, and the US stock markets all posted decent gains.

Meanwhile, the 50-stock gauge Nifty index in India made a surprising 16 percent drop in just eight seconds on Friday trading. The National Stock Exchange of India said the brokerage firm Emkay Financial Services mishandled orders which led to the substantial but fleeting drop in the index. Trading in the Nifty was halted for 15 minutes, while Indian Finance Minister Palaniappan Chidambaram promised they will investigate the stock drop. "I am assured that there is no systemic risk," he told reporters.

For commodities, gold and silver reached their highest since November and March, respectively. Gold inched close to $1,800 on views that the stimulus measure from Japan, Europe, and US will continue to spark the interest in the yellow metal.

Currencies

Currencies were generally quiet for the first half of the week. EURUSD made most of its move on Thursday and Friday, gaining 263 pips and ending near the high of the week. In contrast, AUDUSD ended the week 180 pips lower, while GBPUSD was nearly unchanged.

The much-better-than-expected employment data out of Canada on Friday spurred a rare 60-pip drop in USDCAD in one hour. Other CAD crosses followed with much bigger moves. Given the economic disparity between US and Canada, USDCAD is poised to dive even further. A break of 0.9600 will increase likelihood of price heading towards the 0.9400 lows reached in mid-2011. USDCAD closed around 60 pips below its weekly open at 0.9783.

The Week Ahead

The market will have another busy week ahead, with particular focus on data such as Japan’s Current Account report to be released on Monday; US 10-year bond auction and Beige Book on Wednesday; Australia employment data, Canada Trade Balance, US Trade Balance and Unemployment Claims on Thursday; and US PPI and University of Michigan Consumer Sentiment on Friday. High-level talks also dot the entire week, including speeches from ECB's Draghi, SNB Chairman Jordan, BOJ's Shirakawa, US FOMC Members Tarullo, Yellen, Stein, and Lacker; as well as Eurogroup meetings on Monday, ECOFIN meetings on Tuesday, G7 meetings on Wednesday, and the IMF 3-day meeting starting on Thursday.