GOIH Capital Markets: Our indicators suggest the market is set to open lower on news of the jobs report. The jobs report today announced that 20,000 jobs were lost in the mortgage origination sector in September slowing consumer spending and affecting the market negatively.
Our positions in the posts of Monday suggest that our models have been properly calibrated and the models suggest that the market has no resilience in the short term.
Fundamentally, the market is saying that without job growth, the economy cannot grow broadly. There are certain sectors that are growing based not on employment, but on the weakness of the Dollar.
Manufacturing industries that export are seeing their sales and profits numbers increase due to the currency exchange rate differential. In essence the Dollar is taking it on the chin to aid the exporting sectors and the financial services sectors.
However, the downside of the rate cut is that inflation due to the increase in the price of imports will tend to decrease any positive effect the increase in exports will provide.
Our view of the global market is as follows:
The US economy is in a flux between weak Dollar export led recovery or strong Dollar weak export but cheap imports. The Fed is basically powerless to make any long term substantial effect due to the interconnectivity of the global markets.
The massive amount of liquidity in the market has created a type of private banking system, where borrowers and lenders do not have to go to a regulated financial institution to obtain capital for investment tending to cause regulatory policies to have negligible effect.
Quantitative Models’ Forecasting:
Our quantitative models suggest that in the near term the weak Dollar policy based on continued rate cuts will aid the industrial sectors in manufacturing and suggests that the increases in capital expenditures required to produce more of the exports will increase the costs of the commodities in the manufacturing process, including the labor component. Basically producing more will require more laborers meaning employment will increase driving consumer consumption.