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December Rate Hike Approaches

Strong Jobs Report Sees US Unemployment Decline and Fuels Speculation of Imminent Liftoff

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The monthly nonfarm payrolls report beat conservative estimates of 180,000 jobs added, proving strong on all points with the average hourly earnings index rising 0.40% for the month. With wage growth back on track and improving, the probability of a rate hike according to current Fed Funds futures increased to 70% after Friday’s jobs report.

UK Industrial Production Drags

UK industrial production data from September declined -0.20% for the month alongside a downward revision to the August figure which was cut to -0.90% from initial estimates of 1.00%. The decline in industrial production came as mining and quarrying output declined 4.90% for the month, posting the strongest decline since January 2014. Manufacturing production managed to offset some of the losses, posting a healthy increase of 0.80% after beating estimates of 0.40%. However, previous month's manufacturing numbers were again revised lower to 0.40% from 0.5%. The biggest decline in manufacturing production came from the metals sectors. The British Pound remained weak against the US Dollar and was trading mixed across the board as the markets scaled back expectations of an earlier rate hike from the Bank of England. GBPUSD fell to a 6-month low, closing Friday’s trading session at 1.5025.

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Surprisingly Positive US Jobs Report

The US economy made strong gains on the employment front as wages increased and unemployment fell to 5.00%. The US economy added 271,000 jobs, marking one of the strongest employment readings in the last year, only falling short of last December's 321,000 job gains. Immediately after the release, most economists upgraded their views with some expecting a 100% probability of the Fed acting in December. The markets were beginning to speculate a new trend of declines in the job market considering the previous two months’ weak employment prints, which saw the Fed abstain from hiking rates. The Dollar gained on the surprise print with EURUSD touching down to post a new 6-month low with monetary policy divergence now the main driver. The single currency was seen making a modest recovery from Friday’s lows and a bullish close today could see a minor rally to follow.

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Canadian Unemployment Improves

Overshadowed by the US nonfarm payrolls, Canada's jobs report was also released simultaneously. Posting an impressive string of numbers, Canada's unemployment rate dipped back to 7.00% against estimates of an increase to 7.10%. The monthly employment change was also stronger, marking an increase of 44,400 jobs, above the consensus estimate of 9,500 jobs. However, the surprise gains came on account of hiring related to the Federal Election. The public administration added 32,000 jobs to the economy, but the private sector also saw strong gains, adding 41,000 jobs. Besides the jobs report, building permits data was also released, declining -6.70% for the month. The Canadian dollar was however no match to the Greenback as USDCAD rallied strongly to post a new one-month high, closing Friday’s session at highs of 1.330 while remaining a few pips shy of yearly highs at 1.3420.

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Quiet Start to the Week

After a relatively busy Friday, the markets open today on a quiet note on lack of any major fundamentals to go by. Data on the Chinese trade balance dominated the reopening of Asian markets with the Australian ASX tumbling at the open of trading. In the Asian trading session, Japan's average cash earnings released showed a modest increase to 0.60% from a downward 0.40% previously while beating estimates of 0.50%. The Yen remained weak against a stronger Greenback but the USDJPY pair is showing signs of a correction off Friday's highs. The remainder of the day will see the German trade balance data and the Eurozone Sentix Investor confidence, although none of these releases is likely to see any major impact on the currencies. The US trading session will see the Canadian housing starts where expectations are for an increase of 200,000 from 232,000 prior.

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